Associated British Foods trimmed the annual sales guidance for its clothing business, Primark, after the division's sales declined in the UK and Ireland during the Christmas quarter
Primark’s sales grew 2% during the quarter and while the business delivered good growth across Spain, Portugal, France, Italy, Central and Eastern Europe and the US, sales in the UK and Ireland declined in the period.
AJ Bell said in an analyst note, 'If Primark is struggling, you know the UK retail sector is in trouble. Shoppers remain cautious about spending and reticence over popping a few cheap tops or jumpers in their basket at Primark suggests times are very hard indeed.'
Here is how analysts at AJ Bell, Barclays and Shore Capital viewed the company's performance during the first quarter.
AJ Bell
AJ Bell added that shopping in Primark is 'classic retail therapy' and shoppers usually end up buying more than what they intend to, thanks to prices.
'When Primark says UK sales are weak, you know there has been a change in shopper behaviour. People might still be visiting its stores but they are being more selective and that’s a problem when the business model is built on shifting high volumes of goods,' AJ Bell added.
The investment firm also added that retailers love to blame the weather but the UK saw a relatively mild autumn and very cold winter, which should have boosted sales of jumpers and coats.
'It’s situations like now where Primark’s parent company benefits from its conglomerate structure. While the retail arm has been weak, the ingredients arm has come to the rescue and that’s why the share price hasn’t tanked on the update.'
Barclays
Barclays noted that the overall Primark like-for-like sales could have been worse if it had not been for better-than-expected trading in Continental Europe.
'There will be a debate whether the weakness in the UK is temporary (weather, UK consumer sentiment) or structural (pressure from low-cost peers, brand image, adverse switching data),' it added.
'We suspect it is temporary but until Primark proves otherwise, the stock is likely to remain under pressure.[...] We are encouraged by the performance outside the UK and resilience of margins but this will be overshadowed by the weak UK trading.'
Barclays added that the performance of its grocery and ingredients division was in line with expectations. However, it expects sugar headwinds to remain given the pullback in EU sugar prices and with Vivergo, in particular, remaining under pressure because of weak bioethanol prices.
Shore Capital
Shore Capital cut its profit before tax estimate for the group by 2.2% for FY 2025, with a projected 3.5% decline in profit expectation, to £1.11 billion (€1.31 billion), for the Primark business.
It described the company's grocery revenue momentum as 'rather mellow' and noted that, 'Twinings & Ovaltine is said to have delivered 'good growth' but less happily. Sales momentum in broader UK and US proprietary brands was weaker, where share may have been lost.'
'We note further strife at Allied Bakeries, where value and volume were down. For Ingredients, sales increased by 4.0% with AB Mauri, yeast and bakery ingredients ahead by a similar amount while revenues in speciality ingredients nudged 1% higher. Across its Food activities, ABF's prevailing guidance is unchanged.'
'We cannot deny the disappointment of such a mellow Primark UK trading performance but equally, we see no merit in capitulating on our positivity on the breadth of the group's proposition and investment thesis, embracing that strong financial constitution and ongoing relevance in food and growth potential in retail. Hence, in stock markets that are harsh on disappointment these days, we retain a 'buy' stance on ABF shares.'
