What is the outlook for UK retail stocks in 2025? by Investing.com

Investing.com — It’s been a tough start to 2025 for U.K. retail stocks amid concerns over the U.K. budget tightening for businesses and consumers. On Friday, data showed UK retail sales fell despite expectations for a fall in the holiday season.

Consumers in the UK held back on spending, with retail sales falling 0.3% in December, below consensus of 0.4% growth. However, Jefferies analysts are “cautiously optimistic” for the rest of the year.

In their “Real-time Retail Round-Up” note, Jefferies analysts said “slow Christmas trade trended.”

Key retailers love it Greggs (LON: ), Dunelm, JD (NASDAQ: ) Sports, M&S Clothing/Home, and B&M missed expectations for either comparable sales or profits.

Although these losses did not significantly impact earnings estimates, the market reaction was particularly significant.

The company’s soft sales trends in Q4 2024 are reflected in its retail barometers, which average a run of -4% in 2023, down to -9% in Q3 2024, and to -13% in the final quarter of 2024.

Looking ahead, Jeffries is cautiously optimistic for 2025.

“Recognizing the challenges the sector faces (OPEX/NIC, consumer confidence), particularly in the near term, we think the positive demand backdrop and cyclical higher savings ratios should support a more positive than expected market in 2025.”

Jeffries highlighted the valuation aspect, noting that the sector is trading at roughly 11x multiples, a discount to the long-term average of 15%.

They recommend “selectively adding exposure” and identify their top picks for 2025. Premier Foods (LON: ), Frasers and DFS.