Primark's star still shines for AB Foods

Profits at Primark are on the rise, despite mixed trading numbers, as the budget clothing chain's owner Associated British Foods delivered a 'sweet and sour' trading update.

Total sales at the Primark business lifted 4% as it opened more stores. Picture: John Devlin
Total sales at the Primark business lifted 4% as it opened more stores. Picture: John Devlin

The retailer saw a “modest decline” in like-for-like sales in the 16 weeks to 5 January, covering the crucial festive trading period, although total sales lifted 4 per cent as it opened additional stores.

It cheered a better-than-expected festive performance for its budget high-street chain in the UK, with total sales up 1 per cent.

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On a like-for-like basis, it said UK sales rose in September and October, but lower numbers of shoppers in its stores hit trade in November.

The group added that despite the overall modest decline in global like-for-like sales, profits were “well ahead” at Primark thanks to a higher operating profit margin.

Primark had previously warned that trading was “challenging” in the run-up to Christmas, reporting that like-for-like sales fell 2.1 per cent in the year to September as unfavourable weather conditions weighed on trading in Europe.

Overall, AB Foods saw group-wide revenues rise 2 per cent on a constant currency basis in the 16-week period.

The firm, which owns a sugar business and grocery brands including Twinings and Ovaltine, saw sugar revenues fall 12 per cent at constant exchange rates, and 14 per cent on a reported basis, after it was impacted in the UK and Spain by lower EU sugar prices for contracts negotiated at the end of its last financial year.

Grocery sales were up 3 per cent at a constant currency and by 2 per cent on a reported basis, while its agriculture and ingredients arm saw sales increase 5 per cent and 6 per cent, respectively.

Tom Stevenson, investment director from Fidelity Personal Investing’s share dealing service, described the group’s update as “sweet and sour”.

He said: “Sugar is suffering from low European prices but that was well-flagged. Retail remains the star turn.

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“Without a strong online business, AB Foods’ Primark has to rely on under-cutting its fast fashion rivals to maintain its lead on the struggling high street.”

Graham Spooner, investment research analyst at the Share Centre, pointed to “solid” Christmas trading results.

He noted: “The markets’ focus remains on Primark, especially as these numbers tell the story of the important Christmas period.

“Overall sales rose by 4 per cent despite a small decline in like-for-like sales, with the group stating the Christmas trading period exceeded their expectations.

“The group has been attempting to conquer the US market and though at an early stage in the expansion, there was a pleasing performance especially from its Brooklyn store which opened in July. There was also an improvement in operating margin.”

He added: “Away from high street fashion, the sugar business reported a 12 per cent fall in revenue, but hinted at signs of improvement in EU sugar prices.

“We continue to maintain our ‘hold’ recommendation on the longer term growth prospects for Primark and there is increasing global demand for food, although the picture at the sugar business is a concern.”

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Shares in AB Foods were about 5 per cent higher in afternoon trade.