Image source: Britvic (copyright Evan Doherty)
Christmas has delivered a late gift for UK stocks in the retail sector. Data released last week showed sales beat forecasts with a solid 0.4% rise. Meanwhile, consumer confidence just hit its highest level since August 2024.
They’re refreshing bits of good news after China’s trade slump sent commodities plummeting.
For middle-aged Britons like me targeting passive income, resilient consumer spending’s exactly what we want to see. And some of the nation’s favourite retailers are leading the charge, including Sainsbury’s, Marks & Spencer and Tesco.
Why retail resilience matters right now
The OECD just upgraded UK growth to 1.2% for 2026 while inflation’s beginning to cool. With the interest rate dropping, household spending power’s improving, making consumer-facing stocks more attractive than volatile cyclicals like miners. Defensive retail — think groceries and everyday sportswear — offers the perfect blend of stability and dividends for income-focused portfolios.
Persistent retail resilience proves consumers aren’t cutting back on essentials: food sales hold firm, pet owners keep spending, and activewear remains recession-resistant. This matters because consumer staples typically deliver steady 3%-5% yields with lower volatility than banks or tech — exactly what you want when retirement is 20-25 years away.
But while many retail stocks look promising ahead of the results season, JD Sports Fashion (LSE:JD.) steals the show as the ultimate recovery story to consider.
Regaining ground
JD Sports may have had a tough few years but now looks like the poster child for retail’s comeback. Revenue’s up 14.6% year-on-year while earnings have exploded 58.8%, helping its return on equity (ROE) reach an impressive 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 at £849m consensus, backed by £400m free cash flow and £200m share buybacks.
Although gross margins dipped slightly to 47.3%, due to investments, an 8% increase in loyalty and expanding US stores provide comfort. But with total debt currently outweighing equity, it must keep this growth trajectory going. Even a small earnings miss at this critical junction could derail the recovery story.
With a reasonable price-to-earnings growth (PEG) ratio around 1, it may appear fairly valued. But using a discounted cash flow (DCF) model, it’s estimated to be trading at 47% below fair value.
If earnings forecasts are correct, it should regain the critical £1 level this year — and then some.
Retail’s income gems
For investors keen on a retail stock with growth potential, I think JD Sports is one worth further research. But a well-diversified portfolio should always include some income and defensive picks too. That’s where the other high street retailers come in.
Marks & Spencer’s the quintessential discretionary play with defensive credentials. Despite rising cost pressures, it enjoyed strong Christmas momentum across clothing and food — with margins holding through the season.
For higher yields, Tesco and Sainsbury’s anchor any retirement portfolio. As grocery giants, they deliver essential spending resilience plus 3%-4% yields through loyalty schemes that buffer inflation.
Both delivered strong performance during the festive period, with Tesco’s Finest range sales up 13% and party food up 22%. Meanwhile, Sainsbury’s saw a 5.5% increase in like-for-like sales and 5.7% growth in grocery.
As global markets look increasingly volatile, retail may just be this year’s most appealing defensive play.
