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AB Foods warns of “challenging” trading at Primark in run-up to Christmas

Primark had been displaying the resilience which other retailers such as New Look could only dream of, but investors will be wondering whether this is the first sign of trouble or just a bump in the road
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Retailers can make as much as a third of their annual profits during the holiday season

Associated British Foods PLC (LON:ABF) dealt investors a blow on Friday after warning that trading at its Primark stores has been “challenging” in the lead up to the key Christmas period.

The value fashion chain has been AB Foods’ star performer in recent years, bailing out the struggling sugar business which has been hit by the sweet stuff’s plunging prices.

READ: Primark on track to overtake Next as UK’s second-largest clothes retailer

“However, during November Primark trading was challenging, in a tough retail market,” read a statement ahead of today’s annual general meeting.

Chairman Michael McLintock did add that, as a result of “careful inventory management and improved margins”, he still expects the mass-market retailer to post a rise in full-year profits, driven by increased overall selling space.

But a gentle warning from a seemingly infallible business which makes up more than half of AB Foods’ annual profits will no doubt worry investors, especially when AB Sugar is showing no signs of improvement.

Full-year guidance reiterated

Sugar prices in the EU have tumbled due to a supply glut, which will result in “significantly lower” profits in that division.

Improved margins and a full-year contribution from its recently-acquired Acetum balsamic vinegar business should result in higher profits in the grocery division, which houses the Twinings brand, among others.

“Taking all of these factors into account, at this early stage, we still expect adjusted earnings per share for the group for this financial year to be in line with the 2018 financial year,” said McLintock.

As he repeated the full-year guidance from last month’s annual report, he added that trading in the first eight weeks of the new financial year has been in line with expectations.

High street struggles

“Could we about to see a rough ride for retailers over the key Christmas period?” asks analyst Neil Wilson.

“We know it’s tough out there and share prices across the piece reflect that already to a large degree. But Primark has done better than most and the fact that it too is facing severe headwinds is a concern for the sector as a whole.

“If Primark is struggling, what chance does the rest of the high street have?”

AB Foods shares were down 5% to 2,233p in mid-afternoon trading on Friday.

-- Updates for analyst comment and share price --

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