Tesco PLC (LSE:TSCO), Next PLC (LSE:NXT) and Primark owner Associated British Foods PLC (LSE:ABF) have been downgraded by investment bank Jefferies, citing a growing disconnect between like-for-like (LFL) retail sales and the UK's weakening disposable income outlook.
Jefferies' research on consumer cashflows projects disposable income growth slowing to 1.9% in the 2026-27 fiscal year, down from 2.6% in 2025-26, with weaker wage growth and rising unemployment weighing on households.
Meanwhile, LFLs for major retailers are growing faster than incomes, a gap Jefferies believes is unsustainable.
“UK retail names have re-rated sharply year-to-date, trading at a 16% premium to the FTSE 100,” the broker said, “but against a downbeat macro backdrop and tough comps, near-term upside looks limited.”
Primark owner AB Foods is seen as particularly exposed, with like-for-like sales forecast at -2.0% versus consensus -0.8%.
Jefferies also flagged margin pressures, increased competition, and limited valuation support. Its EPS forecast is 3% below consensus.
In contrast, Marks and Spencer Group PLC (LSE:MKS) is Jefferies’ lone UK retail 'buy' as its food business and recovery potential in fashion and home are seen as undervalued, trading at less than 10 times 2026/27 forecast earnings.