viewAssociated British Foods PLC

AB Foods blames weather for drop in like-for-like sales at Primark in the first half

The 'Beast from the East' meant more people stayed at home rather than shopping at Primark stores, AB Foods said

AB Foods left its full year guidance unchanged

Associated British Foods plc (LON:ABF) has blamed the weather for a 1.5% decline in like-for-like sales at its Primark stores in the first half ended March 3.

The company said unseasonably warm weather in October hurt sales for its winter clothing ranges while icy temperatures in the last week of the period deterred customers from hitting the high street.

The so-called ‘Beast from the East’ brought snowfall and freezing temperatures from Siberia across Europe.

READ: AB Foods expects first-half profit to be in line with last year, held back by fall in sugar revenues

Total sales at Primark were, however, up 7% at constant foreign exchange rates to £3.4mln.

“Just as Primark and others in the sector were decking the shelves with coats and winter clothes, we got an unusually warm October, and the timing of the Beast from the East will hardly have boosted early sales of the Spring/Summer collection,” said George Salmon, equity analyst at Hargreaves Lansdown.

"However, that bout of unseasonably cold weather is now behind us, and in any case investors know being open to the elements is just part and parcel of the retail game."

Revenue for the group, which also includes the grocery, sugar, agriculture and ingredients businesses, edged up 3% at constant currency to £7.4mln.

Statutory pre-tax profit fell 3% to £618mln but this was because last year’s results included proceeds from the sale of the US herbs and spices business and south China cane sugar operations.

US tax cuts lift adjusted profit

Adjusted pre-tax profit, excluding last year’s disposals, climbed 1% to £648mln, supported by tax cuts in the US. The group’s effective tax rate fell to 21.3% this year from 22.7% last year on adjusted pre-tax profit.

Adjusted operating profit rose 1% at constant currency to £648mln as growth at Primark, grocery, agriculture and ingredients offset a decline in the sugar business.

“Good sales and profit growth was achieved by all of our businesses at constant currency, other than sugar, where the reduction was as expected,” said chief executive George Weston.

“Our full year outlook for the group is unchanged with progress expected in both adjusted operating profit and adjusted earnings per share."

Lower prices hurt sugar revenue 

The sugar arm posted a 12% constant currency decline in revenue to £938mln and a 24% drop in adjusted operating profit, reflecting lower sugar prices in the European Union. 

Grocery revenue increased 4% to £1.6bn and adjusted operating profit gained 9% to £159mln at constant exchange rates, driven by growth in Twinings Ovaltine, further margin improvement at George Weston Foods and a contribution from newly acquired balsamic vinegar business Acetum.

Revenue in the ingredients division grew 5% at constant currency to £720mln and adjusted operating profit rose 11% to £63mln.

Agriculture revenue increased 13% to £615mln at constant exchange rates and adjusted operating profit was up 9% to £24mln, boosted by higher feed volumes and prices.

Non-sugar divisions to achieve further profit growth 

AB Foods raised its dividend per share by 3% to 11.7p and said it expects an “acceleration in profit growth” at Primark in the second half. It also anticipates “continued profit growth from our other non-Sugar businesses”.

“These should more than offset the decline in profit at AB Sugar in the balance of the year,” the group said.

ABF plans to open 17 new Primark stores in fiscal year 2018 along with a number of relocations and extensions.

Shares rose 1.6% to 2,626p.

"ABF offers investors compelling exposure to secular growth trends in retail over the next 10 years," Liberum said, reiterating a 'buy' rating and target price of 3,500p. 

"In our view, Primark remains well positioned to take market share and drive double-digit sales growth in FY2018-19, backed by visible new space additions of 1.2m sqf per annum primarily on the (European) Continent and in the UK."

Quick facts: Associated British Foods PLC

Price: 2634 GBX

Market: LSE
Market Cap: £20.85 billion

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