viewAssociated British Foods PLC

AB Foods delivers mixed Christmas trading with Primark lifting sales

Primark sales rose 9% over the Christmas trading period as the company opened more stores and increased its market share

Primark achieved record sales in the week before Christmas

Associated British Foods plc (LON:ABF) reported a 3% increase in revenue in the 16 weeks ended January 6, led by growth at its Primark stores.

The food, ingredients and retail group said it delivered revenue growth across all businesses apart from sugar, which saw revenue fall 13%.

READ: Primark well placed to take US market share, says Barclays as it upgrades parent ABF

The company expects sugar revenue and profit for the full year to drop more than previously forecast as a result of lower prices in the European Union.

Shares fell 3.5% to 2,756p in early deals. 

AB Foods still left its outlook for the group unchanged with “progress expected” in adjusted operating profit and adjusted earnings for the full year.

It also expects sugar production to ramp up during the next fiscal year after the EU’s sales quotas and constraints on exports were abolished at the end of 30 September.

Primark sales increase

Primark sales in the 16-week period rose 9% on the previous year with “strong” like-for-like sales in the UK as it increased its market share. Unseasonably warm weather in October held back sales in Europe but Primark achieved record sales in the week before Christmas and “good trading” in the five weeks leading up to the day.

The group opened five new stores during the period in the UK and in Europe, increasing its retail selling space by 300,000 square feet (sq ft).  It expects to open 1.2mln sq ft this financial year.

Operating margins in the first half are expected to be broadly unchanged from last year as tightly managed stock offset the impact of a weaker sterling against the dollar.

Mixed performance across other divisions

The agriculture business saw revenue rise 12% across the 16-week period and the company expects profit growth for the full year.

Ingredients sales fell 1%, mainly due to foreign exchange headwinds, but AB Foods sees margins improving in the full year.  

Margins in the grocery division are also expected to pick up for the full year. Grocery sales rose 1% in the trading period with the Twinings and Ovaltine brands delivering “good” sales growth.  

US tax reform benefits

The US tax reform is expected to reduce the group’s effective tax rate for the year by 100 basis points while lower interest rates on loans in Zambia and higher rates on US dollar and sterling deposits are projected to cut expenses.

Analysts weigh in on results

Henry Croft, research analyst at Accendo Markets, said: "Overall, the company has left its guidance unchanged amid a mixed Christmas stocking.

"And after a bumper Christmas, proving Primark can maintain sales to offset weakness elsewhere will be a key challenge when it publishes Q2 results in late February."

Liberum repeated a 'buy' rating and target price of 3,500p, saying: "ABF offers compelling exposure to secular growth trends in retail over the next 5-10 years over which we estimate Primark can lift sales and profits by nearly 75%."

Quick facts: Associated British Foods PLC

Price: 1975 GBX

Market: LSE
Market Cap: £15.64 billion

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