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Associated British Foods plc

AB Foods back in fashion as Primark enjoys better than expected Christmas

A 4% rise in sales, coupled with higher operating margins, meant Primark’s profits over the past three months or so were “well ahead” of last year

primark store
Primark accounts for more than half of AB Foods’ group profit

Associated British Foods PLC (LON:ABF) was back in fashion on Thursday after it revealed that Primark enjoyed a better than expected Christmas.

November was reported by some in the industry as the worst month for retailers in living memory. Even Primark, which had seemed immune to dwindling consumer confidence and weaker high street footfall, warned that trading that month had been “challenging”.

READ: AB Foods warns of “challenging” trading at Primark

Shares dropped on the back of that update, with investors speculating that the slump might well continue over Christmas – a key trading period in which some retailers can make more than a third of their annual profit.

But AB Foods said on Thursday that sales over the festive season “exceeded our expectations”, helping the value fashion chain to significantly increase its share of the UK clothing market.

Primark profits ‘well ahead’

Overall, sales in the 16 weeks to 5 January rose 4%, largely driven by new store openings and extensions to existing shops. Sales in the UK grew 1% - an impressive feat given the market as a whole declined year-on-year.

The rise in sales, coupled with higher operating margins, meant profits were “well ahead” of last year, ABF said.

Away from the UK, sales in Europe rose 5% with “especially strong” performances in France, Belgium and Italy. Primark’s US business also enjoyed a “strong” period as sales boomed at its new Brooklyn store.

The only blot for the retailer was a “modest decline” in like-for-like sales, mainly due to the woeful November.

Sugar’s struggles continue

As with Primark, ABF saw sales grow in both its grocery and agriculture and ingredients businesses, although, as expected, AB Sugar struggled once again.

An excess supply of the sweet stuff has hit sugar prices which have been falling for some months now, and the FTSE 100 group expects this business to make a loss this year.

There could be some light at the end of the tunnel, though, with prices showing much-needed “early signs of recovery” in recent weeks.

The sugar division’s troubles partly offset growth elsewhere, although total group revenues still climbed 2% in the 16-week period.

Primark ‘still the jewel in ABF’s crown’

“ABF’s crown jewel is still Primark, and it’s managing to shine through a pretty muddy high street environment,” said Hargreaves Lansdown equity analyst Sophie Lund-Yates.

“Growth may be slightly slower than we’ve seen in recent updates, but the fact is positive sales growth is a feat many stores simply aren’t managing at the moment.

“With brands from Debenhams to Superdry battling with a dwindling customer base, Primark’s doing well to stand firm – especially because it doesn’t have an online presence to rely on like the others.

She added: “For now Primark just needs to keep doing what it’s doing – opening new stores is clearly working, even if doing so seems like a brave move in a rocky retail climate. All-in-all, Primark’s in a position some of its rivals can only dream of.”

AB Foods shares rose 5.7% to 2,301p on Thursday afternoon.

-- Updates for share price and analyst comment --

Quick facts: Associated British Foods plc

Price: £22.78

Market: LSE
Market Cap: £18.03 billion
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