Primark owner Associated British Foods (ABF) has upgraded annual earnings guidance following better-than expected fourth quarter profit performances from the budget fashion chain and the foods-to-fashion conglomerate’s sugar business.

Yet Associated British Foods’ shares led the FTSE 100 lower on Monday, marked down 3.8% to £18.96 on the news Primark’s domestic sales were severely impacted by the Covid ‘pingdemic’, while the group also flagged a £35 million foreign exchange hit this year due to the strengthening of the pound.

Adjusted earnings per share for the 53 weeks to 18 September 2021 is now expected to be ahead of previous guidance and marginally ahead of last year, said Associated British Foods, adding that fourth quarter operating profit for both Primark and its food businesses is ‘anticipated to exceed our expectations’.

Discount clothing store Primark’s fourth quarter operating margin proved strong despite lower than expected sales and the sugar divisions will deliver ‘a much-improved profit year-on-year, led by a very strong performance in Illovo’, explained the company.


While Primark’s annual adjusted operating profit is now expected to be ahead of last year, the budget fashion chain’s fourth quarter performance in the UK was negatively impacted by the ‘pingdemic’ of contact tracing alerts.

Like-for-like sales were down 24% in the first four weeks and down 8% in the most recent four weeks.

Reassuringly, Primark’s UK market share over the past 12 weeks is said to have been maintained despite the store disruption.

Elsewhere, Primark’s like-for-like sales slumped in Spain and Portugal, where the slump in foreign tourism caused by international travel restrictions reduced footfall, while in France, the requirement for the Covid ‘pass sanitaire’ introduced in early August has led to footfall declines.

Like-for-like sales in the US, which has had minimal public health restrictions, excluding Primark’s downsized Boston Downtown Crossing store, were 3% ahead of the same period two years ago.

Looking into the next financial year, management expects currency benefits to ‘broadly mitigate’ supply chain and raw material costs at Primark, which will continue to benefit from lower labour costs.

AJ Bell investment director Russ Mould pointed out that Covid restrictions have also impacted Primark’s progress with store expansion.

‘It is ‘having trouble weighing up potential new sites which is negative for a brand that has thrived from planting new flags in various parts of the world.

‘Sustaining the store rollout is very important when you consider that Primark doesn’t sell its products online. It’s always said that the economics of the web don’t add up when its product price tags are so cheap.

‘On that front, it is interesting to see the company announce plans to launch a new website but there is no sign that this will be a transactional one. Historically it has used the online channel just to showcase products and the new plan seems to be centred on letting customers see which products are available on a store-by-store basis.

‘Knowing if something is stocked in your local store or not is useful if you want to avoid a wasted trip into town, but equally it’s a lost opportunity for Primark to sell them something else. Just remember its success has been led by people visiting its stores, browsing the aisles and walking out with products they weren’t initially intending to buy.’


Following the update, Shore Capital expects to be ‘putting through modest upgrades to our full year 2021 earnings per share forecast of 68.8p. We also expect to be tweaking our full year 2022 earnings per share forecast of 141p to reflect the potentially higher profit base, stronger sugar delivery and the impact of what appear to be higher Primark guidance offsetting a modest reduction in our new space expectation’.

Reiterating its ‘buy’ recommendation, the broker insisted Associated British Foods’ valuation is ‘far too low for a company with leading market positions and brands across its food activities and a still highly potent and immature Primark format. We also highlight an immensely strong balance sheet with very high cash balances.’


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Issue Date: 13 Sep 2021