viewAssociated British Foods PLC

AB Foods still expects “good profit growth” at Primark this year despite recent sales slowdown

Sales at Primark dropped in May as a result of the “unseasonable weather” in the UK and Europe, but trading has picked up since and margins continue to improve

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The group’s full-year outlook remains unchanged

Associated British Food PLC (LON:ABF) still expects Primark to deliver “good profit growth” this year, despite May's weather-related sales slowdown.

Value fashion retailer Primark is the jewel in AB Foods’ crown, making up two-thirds of group profits last year.

READ: AB Foods hikes dividend despite first-half profit plunge

Trading picked up last month, and sales at Primark in the first 40 weeks of AB Foods’ financial year were 4% ahead of 2018, as the impact of increased selling space offset a drop in like-for-like sales.

New stores drive Primark’s growth

First-half profit margins jumped to 11.7%, well ahead of the 9.8% recorded at the half-way stage last year.

This was driven by a weaker dollar, as well as better buying and tight stock management, the FTSE 100 company said.

AB Foods had previously said that a stronger dollar would hit margins in the second half, and this is still the view, although bosses now think better buying and less discounting should make up for that.

“For the full year we expect good profit growth in Primark,” said the company in Thursday’s trading update.

Decent showings in grocery, ingredients and agriculture

Higher profits, on an underlying basis at least, are also expected in the grocery business as a result of “good trading” in Twinings Ovaltine and its Acetum balsamic vinegar division.

ABF is still trying to cut costs at Kingsmill bread-maker Allied Bakeries which lost its largest contract earlier this year.

Sales in the ingredients and agriculture businesses also rose in the third-quarter, although margins at the latter have remained under pressure due to higher raw materials costs and increased price competition.

Sugar’s struggles continue

The troubled sugar business continues to struggle, and profits are expected to fall once again as low sugar prices in Europe hurt the bottom line.

Stocks are low at the moment, though, which should help to underpin the minor recovery seen in prices earlier this year.

“We continue to expect that the full year profit decline in Sugar has been reflected in the first half,” said ABF.

Full-year expectations unchanged

Overall, group revenue rose 3% in the 40 weeks ended 22 June. Excluding sugar, sales from continuing businesses was 4% ahead.

“Our full year outlook for the group is unchanged, with adjusted earnings per share expected to be in line with last year.”

ABF shares edged 1.1% higher to 2,470p in early deals on Thursday.

Quick facts: Associated British Foods PLC

Price: 2538 GBX

Market: LSE
Market Cap: £20.09 billion

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