Diversified conglomerate Associated British Foods (ABF) has upgraded its profit guidance for the year to September 2023 following a good start to the summer selling season for its discount fashion chain Primark, twinned with tasty sales progress across its food businesses in the third quarter to 27 May.

The FTSE 100 food-to-fashion giant now expects adjusted operating profit to be ‘moderately ahead’ of last year, prompting Shore Capital to upgrade its EPS (earnings per share) forecast by 6.5% to 140.3p.

However, shares in Associated British Foods softened 1% to £19.34 on profit-taking following a recent rally.

PRIMARK SHINES

Group sales rose 16% to £4.73 billion in the third quarter, with food sales up 18% to £2.73 billion and Primark’s sales strutting 13% higher to just under £2 billion.

Associated British Foods said cut-price fashion chain Primark traded in line with management expectations with summer ranges ‘performing well’ as the season started.

Like-for-like revenue growth of 7% was supported by price increases and strong sales of seasonal clothing and accessories as well as health and beauty products.

At a time when people are watching their pennies, Primark’s low-cost clothing is attractive, particularly for those jetting off on holiday who want to refresh their summer outfits on a budget.

And the chain’s overseas expansion continues apace, with a first store opening in Slovakia taking Primark into its sixteenth market and the retailer pressing ahead with its expansion in the US with new outlets in Buffalo and Toledo.

The geographic roll-out of Primark’s updated websites also continued in the quarter, launching in Germany, Spain, Italy and the US and in France shortly after the period ended, with remaining markets to follow over the summer.

TASTY PERFORMANCE

Elsewhere within the group, the food business, which includes grocery brands Twinings, Patak’s, Kingsmill and Jordans as well as the sugar, agriculture and ingredients arms, continued to perform well.

Associated British Food highlighted strong constant currency sales growth in grocery and ingredients driven by price hikes earlier in the year to offset cost increases, while in the sugar business, trading has ‘continued to be strong’ across its key African markets.

EXPERT VIEWS

Shore Capital insisted Associated British Foods has ‘a lot going for it and externalities around inflation, its non-discretionary and value retail credentials, plus rising base rates play to its strengths, with notable cash balances evident’ and said it sees ‘scope for capital appreciation for underlying growth and rating expansion in forthcoming periods.’

Commenting on Primark’s performance, Russ Mould, investment director at AJ Bell, noted that the recovery of physical retail has also provided ‘a big boost to a brand which only has a very limited web-based presence. It should not come as any surprise that when it comes to clothes, shopping in-store is a winner.

‘The company is also pushing through some price increases and it’s encouraging Primark has the headroom to do so without damaging its value credentials. Particularly when, on a relative basis, it still looks cheaper than high street rivals.’

Mould added: ‘Longer term there remain questions about the sustainability of Primark’s supply chain and its somewhat disposable clothing options.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

LEARN ABOUT ASSOCIATED BRITISH FOODS

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