Associated British Foods has reported a 3% increase in sales in the first 40 weeks of its financial year, the company has said in a trading update, with grocery sales up 1% and its Primark fashion business seeing a 4% rise.
'For the full year we expect good profit growth in Primark and, on an underlying basis, in Grocery,' the company said in a statement. 'We continue to expect that the full year profit decline in Sugar has been reflected in the first half.'
Here's how leading industry analysts viewed its performance:
Russ Mould, AJ Bell
“In a turbulent market for retailers, Associated British Foods’ Primark chain has managed to crack on unperturbed with increased selling space helping to offset the negative impact of bad weather in May.
“Primark’s expansion in the US appears to be going well. This is a major positive given how British retailers have notoriously struggled to crack the American market. Tesco, Dixons and HMV are good examples of retailers jumping over the pond only to subsequently do a U-turn. Overseas expansion can be a drain on management time and many companies underestimate the cost of breaking into a new market and the intensity of competition.
“As for the non-clothing part of Associated British Foods, it’s the same old story: sugar is keeping its chin up after a very tough time, grocery sales are quietly pushing ahead, the ingredients arm is doing well and the agriculture business is growing revenue but fighting margin pressures.
“The benefit of having a conglomerate structure is that the good parts can help to cushion the bad bits – and that’s certainly the case with Associated British Foods’ latest announcement.”
Chloe Collins, GlobalData
‘‘Primark’s fast fashion, value offer continues to prove a winning combination, with year to date sales growth maintained at 4% by the end of its third quarter (in line with H1 growth). With l-f-l sales remaining a challenge in both the UK and the Eurozone due to the late arrival of summer weather, growth has been driven by the retailer’s ongoing expansion, with selling space increasing by 0.8m sq ft since the beginning of FY2018/19.
"Although operating margin in H2 was originally expected to decline due to a stronger US dollar rate in comparison, this has been offset throughout Q3 by Primark’s improved buying processes and markdown reductions – leaving the full year view now more positive. With everything to play for in its final quarter, Primark remains in a good position to overtake M&S as the UK’s clothing market leader in 2019."
Liberum Consumer Team
"ABF offers investors compelling exposure to secular growth trends in retail over the next 10 years. In our view, Primark remains well positioned to take market share and drive mid to high-digit sales growth in FY19-23E, backed by visible new space additions of 1m sqf p.a. primarily on the Continent and in the UK.
"Primark’s 2H’19 margin is expected to fall below the 11.7% reported in 1H'19 due to the impact of stronger US$ impacts on buying. Excluding M&A and store parcels, we estimate ABF will deliver a 7% adj."
Darren Shirley, Shore Capital
"The most important feature of the update, in our view, is the reiteration of management guidance for EPS to be “in line with last year”. We leave our FY2019 forecasts unchanged, looking for EPS of 134.7p.
"[At Primark], total sales through the 40 weeks were up 4%, which is in line with the 4.4% reported for H1. As expected, new space was the driver for growth, with a total of 0.8m sq ft added in the YTD, including 0.5m sq ft in Q3. Growth has been “partially offset” by a decline in LFL sales (again, as expected), which we estimate have eased further to -3% through Q3 from a 1.5% contraction reported for H1."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
