Image source: Britvic (copyright Evan Doherty)
Christmas brought a belated gift for UK stocks in the retail sector. Data released last week showed sales forecasts for a solid increase of 0.4%. Meanwhile, consumer confidence recently reached its highest level since August 2024.
It’s refreshingly good news after a slowdown in trade in China sent stocks tumbling.
For middle-aged Brits like me who are targeting incomes, strong consumer spending is exactly what we want to see. And some of the nation’s favorite retailers are leading the way, including Places to stay in Sainsbury, Marks & Spencer again Tesco.
Why retail sustainability is important right now
The OECD recently boosted UK growth to 1.2% in 2026 as inflation starts to cool. With interest rates falling, domestic spending is improving, making consumer-facing stocks more attractive than cyclical volatility like miners. Secured sales – think groceries and casual sportswear – offer the perfect combination of stability and the benefits of income-oriented portfolios.
Persistence in sales proves that consumers are not skimping on the essentials: food sales are strong, pet owners are spending money, and activewear remains timeless. This is important because consumer staples typically deliver a solid 3%-5% yield with lower volatility than banks or tech – which is exactly what you want when retirement is 20-25 years away.
But while many retail stocks look promising ahead of results season, JD Sports Fashion (LSE:JD.) steals the show as the final recovery story to consider.
Finding a place
JD Sports may have had a tough few years but now looks like the poster child for a retail comeback. Revenue rose 14.6% year-on-year while earnings jumped 58.8%, helping its return on equity (ROE) reach 19.6%. Q4 trading showed organic sales up 1.4%, with North America like-for-like growth of 1.5%. Pre-tax profit guidance remains on track for consensus at £849m, supported by £400m of free cash flow and £200m of share buybacks.
Although gross margins fell slightly to 47.3%, due to investments, an 8% increase in loyalty and the expansion of US stores provide comfort. But with total debt currently exceeding equity, we should keep this growth trajectory going. Even a small shortage of money at this critical stage can disrupt the recovery process.
With a reasonable price-to-earnings growth (PEG) ratio of around 1, it may seem reasonably priced. But using the discounted cash flow (DCF) model, it is estimated to trade 47% below fair value.
If earnings forecasts are correct, it should regain the key £1 level this year – and then some.
Sales revenue values
For investors interested in a stock with growth potential, I think JD Sports is one worth further research. But a well-diversified portfolio should always include income and defensive options. This is where other high street retailers come in.
Marks & Spencer’s is the quintessential discretionary play with defensive details. Despite rising cost pressures, it enjoyed strong Christmas momentum across clothing and food – with margins holding up for the season.
For maximum yield, Tesco and Sainsbury’s support any retirement portfolio. Like the grocery giants, they deliver significant spending stability and 3%-4% profits through inflation-proof loyalty programs.
Both delivered strong performances over the festive period, with Tesco’s Finest range sales up 13% and party food up 22%. Meanwhile, Sainsbury’s saw a 5.5% rise in like-for-like sales and a 5.7% rise in grocery.
With global markets looking increasingly volatile, selling may be the most defensive play of the year.
