Associated British Foods PLC (LSE:ABF) said sales tumbled in the fourth quarter but underlying operating profit for both Primark and its food businesses will top current expectations.
The fast-fashion retail chain is expected to have an operating profit margin of over 10% due to lower labour costs, as it did not replace staff after they retired or resigned.
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This trend is estimated to keep the operating profit margin in the next year as well.
The FTSE 100 group will also repay cash received by various governments under job retention schemes, amounting to £96mln in the second half.
Sales dropped 17% in the fourth quarter compared to two years ago, after the Delta variant hampered an initial phase of pent-up demand when stores reopened.
Trading was hit by lower footfall during the summer, caused by the ‘pingdemic’ in the UK and COVID-19 restrictions in other countries, except for the US where sales rose 3% compared to the same period in 2019.
However, full-year adjusted operating profit (before repayment of job retention scheme cash) is now ahead of the profit delivered last year.
The 'comfort living' trend remained fashionable in the quarter, with strong sales of leisurewear such as leggings and cycle shorts, and continued demand for seam-free matching separates for women.
Sales of our autumn/winter ranges have started well with strong demand for back-to-school ranges.
Primark is not immune to supply chain disruption, so inventory level is expected to be £200mln lower than expected at year-end.
Looking at the wider group, the sugar business has done well and will deliver a much-improved profit compared to last year, led by a very strong performance in Illovo. Demand in Europe is also expected to top production next year.
Grocery revenues are expected to be up year-on-year but adjusted operating profit will drop due to weaker corn oil margins. Profit also includes a one-off charge of £5mln for restructuring in Allied Bakeries.
Ingredients and agriculture are forecast to deliver higher revenues and profits.
Total cash at the end of the 53 weeks to 18 September will be £1.9bn, compared to £1.6bn a year ago.