Food to clothing retail conglomerate Associated British Foods PLC (LON:ABF) has maintained its full-year earnings guidance, with solid sales growth seen at its Primark discount fashion retailer, but its shares retreated on margin concerns.
In a trading update, the FTSE 100-listed firm said that for the half year it expects “excellent progress in adjusted operating profit and adjusted earnings per share for the group.”
It added: ”The trading outlook for the group for the full year is unchanged with progress expected in adjusted operating profit and adjusted earnings per share.”
For its flagship clothing retail business, AB Foods said Primark’s sales are expected to be 11% ahead of last year at constant currency, driven by increased retail selling space, and 21% ahead at actual exchange rates.
It said Primark’s UK operations performed well with "like-for-like sales 2% ahead of last year and market share increased reflecting the strength of our consumer offering."
The group added: “New stores opened in the period traded strongly and our business in the US continued to develop.”
Margins under pressure ...
But AB Foods said Primark's operating profit margin in the first half will decline, as it previously forecast,"mainly reflecting the strength of the US dollar on input costs.”
In a note to clients, analysts at Liberum Capital noted that “Primark’s EBIT margin remains pressured by adverse FX.”
But they added: “ABF offers compelling exposure to secular growth trends in retail over the next 5-10 years.
“We estimate Primark can double sales and profits over the next 5 years.”
Liberum reiterated its ‘buy, rating and 3,100p target price on AB Foods.
In early trading, AB Foods’ shares were down 1%, or 27p at 2,584p.
Sweet growth …
Away from Prinmark, the firm said revenues from continuing operations from its AB Sugar business will be well ahead of last year on a comparable basis taking into account the change in Illovo's year end.
“Higher sugar prices, increased production in Africa, and further benefit from the performance improvement programme will deliver a substantial increase in profit’” AB Foods added.
In its Food business, the group said Twinings Ovaltine revenues “are well ahead of last year at constant currency and, with almost 80% of sales generated overseas, revenues at actual exchange rates are even further ahead. “
It said: “Twinings has achieved market share gains in the UK, the US, Australia and France. Ovaltine sales showed good growth in the developing markets of Vietnam and Brazil and with successful new products in Thailand.”