AB Foods expects fiscal H1'18 earnings growth despite blip at Primark

Associated British Foods PLC said Feb. 26 that it expected to deliver progress in adjusted earnings per share for its fiscal first half despite a blip in the performance of its fashion retail chain Primark.

The London-based food and retail company, in a trading statement ahead of the close of the 24-week period to March 3, said it anticipated sales at Primark would show a 1% decline year over year on a like-for-like basis due to unseasonably warm weather in October 2017 that stifled demand for cold-weather clothing.

Primark's problems during the month mirror similar struggles at rivals Industria de Diseño Textil SA, also known as Inditex and owner of the Zara fashion chain, and H&M Hennes & Mauritz AB, both of which saw their sales performance hit during October 2017. While H&M faces structural issues, Primark appears to have bounced back quickly, like Inditex.

AB Foods said like-for-like sales at Primark in the 16 weeks to March 3 are expected to show 1% year-over-year growth including record sales in the week before Christmas. It did not provide further details, although it added that early trading in Primark's spring/summer range had been "encouraging."

The company, which will report its interim results April 17, said it expected to expand profit growth at low-cost seller Primark during its fiscal second half due to improving margins, "driven by better buying and some benefit of the recent weakness of the U.S. dollar on purchases which will more than offset an expected return to a more normal level of markdowns."

Primark's operating margin in the fiscal first half is expected to be close to the 10% it achieved a year ago, AB Foods said.

Total sales at Primark are expected to rise 9% year over year at actual exchange rates and 7% at constant exchange rates. Selling space has increased by 400,000 square feet to 14.3 million square feet since Sept. 16, 2017, the end of its most recent fiscal year. It operates 352 stores, up from 329 a year ago.

Primark generated 46% of AB Foods' total revenue of £15.30 billion in the fiscal year ended Sept. 16, 2017, and it accounted for 54% of adjusted operating profit.

AB Foods said it expected to deliver sales growth at constant exchange rates in all its divisions apart from sugar, which was impacted by lower prices in the European Union. The EU sugar regime ended Sept. 30, 2017, resulting in the end of sales quotas and the removal of constraints on exports. Sugar production in the EU during the 2017-18 campaign will be substantially higher than the previous year as a result of exceptionally high beet yields and increased crop area, the company said.

It expected revenue growth in its grocery business, with demand for its chocolate malt drink Ovaltine and tea brand Twinings boosting margin and operating profit.

The company delivered adjusted EPS of 59.7 pence in the 24 weeks to March 4, 2017.

In early morning trading in London, AB Foods' shares were up 48 pence, or 1.8%, at 2,693 pence.