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New Look’s troubles could help drive sales at AB Foods’ Primark business

Primark hasn’t suffered as much as some of its high street peers, but sales have started to slow, although the closure of dozens of New Look and House of Fraser stores should help to reverse that trend

primark store
AB Foods is still looking to conquer America with its Primark stores

New Look’s recent troubles could help to reverse recent “sluggish” like-for-like sales trends at Associated British Food PLC’s (LON:ABF) Primark stores.

Sales have stuttered in recent months as consumer confidence wanes, although the value fashion retailer has managed to avoid some of the problems suffered by its high street peers.

New Look is shutting 60 stores as part of its turnaround plans, while House of Fraser has also been forced to close 31 of its department stores amid tough trading.

READ: House of Fraser confirms plans to shut 31 stores

Analysts at RBC Capital reckon those closures will help Primark, AB Foods’ star asset.

“We see potential for Primark's LFL sales to return to positive territory in H2 and FY19 owing to an ongoing strong product offer and less competition from the likes of New Look, Pep & Co and Lefties,” wrote analyst Richard Chamberlain in a research note.

“We think this should reassure investors who have been concerned about sluggish LFL sales trends and its lack of a transactional online offer.”

Chamberlain adds that concerns over Primark’s performance across the pond have been “overdone” and claims that the brand is finally starting to gain traction there.

“Primark's entry into the US in 2015 created a lot of excitement but performance has been affected by a lack of brand recognition and as it has taken time to adapt its offer for the US market.

“We think Primark has settled on the right sort of format now as a mid-sized box and its next opening in Brooklyn, New York, should be an important milestone for the brand there.”

Reflecting a general re-rating in the industry re-rating and a slight increase to his earnings forecasts, the analyst has upped his rating to ‘outperform’ (from sector perform) and has also hiked his price target to £31 from £28.

ABF shares are up 1.4% to 2,774p in early deals on Monday.

Quick facts: Associated British Foods PLC

Price: 2478 GBX

LSE:ABF
Market: LSE
Market Cap: £19.62 billion
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