Associated British Foods has issued a trading update, in which the Primark owner said that group revenue from continuing operations was 2% higher than at the same period last year, at constant currency levels.
'Other than the expected reduction in Sugar revenue, sales growth was delivered by all our businesses,' the company said.
Here's how leading retail analysts viewed its performance.
Russ Mould, AJ Bell
“In recent times the main contributor to growth at conglomerate Associated British Foods has been budget fashion chain Primark. That’s why December’s disappointing update on Primark’s performance caused such a jolt to the share price. Today’s statement helps repair some of the damage with total sales up 4% year-on-year for the 14 weeks to 5 January.
“Ultimately Primark, while cheap, does not really sell that many essential items; for the most part it represents a discretionary spend for consumers. So if shoppers react to the current uncertain economic backdrop by cutting back their spending, Primark is likely to suffer. Lacking a material online operation, it is also reliant on high street footfall which is in clear decline.
“That said, Primark remains Associated British Foods’ jewel in the crown and given the continued pressure on its sugar division, in particular, there could be renewed calls for a break-up of what is something of curiosity of a business in a world where conglomerates are now few and far between.”
Kate Ormrod, GlobalData
"Primark’s more muted Q1 performance, with low single-digit growth driven by an increase in selling space as like-for-likes declined, is evidence of how tough the fashion sector was in 2018. Indeed Primark has one of the most compelling propositions on the UK high street. However being a non-discounting store-only retailer poses a challenge in the run up to Christmas as spend continues to shift online and the market becomes even more promotional allowing shoppers to more easily trade up.
"ABF had already announced that November trading in the UK had been ‘challenging’, with the retailer today stating that reduced footfall dampened sales; however its appeal won shoppers over with sales over the Christmas period outperforming expectations.
"As experienced in FY2017/18, weak trading in the German market remained a sticking point for Primark in Q1, though it was offset by strong growth in France, Belgium, Italy and the US. Despite softer sales growth, operating profit margin rose in Q1, owing to buying in at a weaker US dollar rate and tighter stock control."
Barclays European Food Retail Equity Research
"Although Primark's LFL in its Q1 of -2% was in line with cons, we see 4 key positives: (1) an impressive UK performance over Xmas with an estimated current LFL run-rate of +3%; (2) continental European LFL decline rates improving with better trading in Spain and a solid performance in Italy, Belgium and France (with Germany still difficult); (3) strong US Primark trading with an estimated +10% LFLs, which could give management confidence to expand faster; and (4) a strong Primark margin performance where we now expect 1H margin up 150bp (vs 70bp previously) and FY19E margins +30bp (vs flat previously).
"Bearishness on all aspects of the UK high street has been all-pervasive, but Primark continues to demonstrate it is a 'net winner' even without a transactional online offer.
"The key message on sugar is the early sign of recovery in EU sugar prices, which gives us increased confidence in a fivefold increase in sugar profits in 2020. On Grocery, whilst the momentum in Twinings/Ovaltine remains impressive, losses in UK bread remain, but the one unexpected profit hit was a £12m one-time charge for tea rationalisation which will be taken above the line but creates an easy comp for next year."
Darren Shirley, Shore Capital
"The immediate feature of the update is that “the outlook for the Group is unchanged” with EPS expected to be in line with FY2018; as such, we expect to leave our forecasts unchanged.
"Despite AB Sugar reporting a sales decline of 12% (-14% on an actual basis), we believe today’s update signals the bottom of ABF recent downward Sugar profitability cycle. Whilst EU revenues were materially impacted by prices contracted at the end of FY2018, we are encouraged that management has highlighted 'early signs of recovery in EU sugar prices' for FY2020."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine
