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AB Foods expects Primark’s first-half profit to be “well ahead” of last year

AB Foods spooked investors in December when it warned of “challenging” trading heading into the key Christmas period, but sales have bounced back in the months since
Primark accounts for more than half of AB Foods’ annual group profit

First-half profits at Primark, Associated British Foods plc’s (LON:ABF) star division, are expected to be “well ahead” of last year after a pick-up in sales over Christmas and into the New Year.

AB Foods issued a shock profit warning at the back-end of 2018 after a “challenging” November – a key month for Britain’s retailers which signifies the start of the hectic festive shopping season.

READ: ABF warns of "challenging" trading in run-up to Christmas

But the FTSE 100 giant reassured investors in January that Christmas trading at its value fashion chain had been strong and even “exceeded [management’s] expectations”.

ABF confirmed on Monday that Primark sales for the six months to 2 March are expected to be 4% ahead of last year.

The growth is being driven largely by new store openings and extensions to existing shops, with like-for-like sales set to fall 2% in the first half.

“[But] with a much higher margin, profit is expected to be well ahead of the same period last year,” read Monday’s all-encompassing update.

Sill winning market share in UK

The UK, where Primark is still winning market share, “continue[s] to perform well”, with trading to continuing to pick up since January’s update amid an “encouraging” reaction to the new spring/summer range.

The performance over Christmas and into the New Year has offset the poor November meaning UK like-for-likes should be level with last year.

Away from its home market, “excellent trading” at the new Primark store in Brooklyn, New York, coupled with better buying, tighter stock management and fewer discounts, has “much reduced” the operating loss of the US division.

Sales in Europe are expected to be 5% ahead of last year, with “particularly strong” growth in Spain, France, Italy and Belgium. First-half like-for-likes across the Channel are expected to dip 3%.

Management still has a few levers to pull in terms of driving sales it seems, with several new stores set to open in the UK and Europe next quarter.

Sugar's struggles persist

As with Primark, AB Foods expects sales to have risen in its grocery, agriculture and ingredients divisions in the first half.

In grocery, good performances from the Twinings Ovaltine and Ryvita brands means revenue and profit will come in ahead of the same period last year.

In the agriculture division, ABF has been able to sell more of its feed despite having to raise prices due to higher commodity costs. Protein crisps were the big growth driver for the ingredients business.

Unsurprisingly, though, AB Sugar is still struggling.

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

There looks to be some much-needed light at the end of the tunnel though, with stocks coming down which is helping to underpin the “current upward trend in EU sugar prices”.

Guidance reiterated

Growth elsewhere will more than offset the troubles in the sugar division, though.

ABF bosses expect adjusted earnings per share to be in line with the first half of last year – around 61.3p – with slightly lower costs offsetting a small reduction in adjusted operating profit.

“For the full year, our outlook for the group is unchanged with adjusted operating profit and adjusted earnings per share for the year expected to be in line with last year (134.9p).”

Shares dropped 0.9% to 2,292p at the opening bell on Monday.

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