Primark-owner Associated British Foods (ABF) is getting a massive lift from US expansion, offsetting damper weather hit UK sales.
The encouraging news arrived in a third quarter update in which Weston family-controlled foods-to-fashion conglomerate Associated British Foods maintained overall guidance.
That means flat full year adjusted earnings per share as the company continues to struggle with its sugar business.
Shares in Associated British Foods have risen 18p to £24.62 in early trade.
PRIMARK IMPRESSES AGAIN
Sticking with bricks and mortar retailing and eschewing the online channel keeping many rivals’ heads above water, Primark’s cut-price clothing and accessories continue to fly off the shelves both at home and abroad; in the 40 weeks to 22 June, sales grew by a creditable 4%, with increased selling space more than compensating for a decline in like-for-like sales.
Here in the UK, the sales growth recorded in the first half continued in the third quarter as Primark racked up further market share gains. Like-for-like sales were constrained by ‘unseasonable weather in May’, although Associated British Foods insists sales then improved in June, somewhat surprisingly considering last month’s wet weather.
‘Trading at our new stores was strong and we have been encouraged by our customers’ reaction to the full product range and the new food and beverage and beauty services offered in Birmingham High Street’, enthused Associated British Foods.
‘Sales in the Eurozone were also affected by the unseasonable weather in May but trading recovered strongly in June. Sales growth was delivered in Spain, Portugal, France and Italy. Trading continued to be weak in Germany.’
LIVING THE AMERICAN DREAM
Excitingly for shareholders, Primark’s value for money proposition is also resonating with shoppers in the vast US market, where the fledgling business delivered ‘encouraging like-for-like and strong total sales growth’ in Q3.
Over the coming 12 months, Primark will open new stores in New Jersey and Florida and has also exchanged contracts on a store in State Street, Chicago, pushing the Primark brand ever-deeper into the US market. Associated British Foods also expects to deliver an increase in Primark’s full year margin as better buying and lower markdowns limit the impact of the stronger US dollar.
READ MORE ABOUT ASSOCIATED BRITISH FOODS HERE
In a note to clients analyst at broker Liberum Capital explained that Associated British Foods offers investors ‘compelling exposure to secular growth trends in retail over the next 10 years.’
Liberum has a £30.70 target for the share price over the next 12 montsh or so, implying 25% upside, if the number cruncher is right.
Russ Mould, investment director at AJ Bell, says that ‘Primark’s expansion in the US appears to be going well.’
Mould sees this as a major positive given how British retailers have notoriously struggled to crack the American market in the past.
‘Primark’s low value point should work in its favour in the US, particularly as more middle-income consumers in the country now shop at discounters and budget stores.
‘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 quieting 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.’
