- Food-to-fashion conglomerate leaves full year outlook unchanged
- Primark off to strong start
- Input cost volatility has ‘diminished’
Primark owner Associated British Foods (ABF) provided some relief for shareholders by sticking to its annual guidance despite a difficult backdrop with shoppers feeling the cost-of-living squeeze.
Shares in the FTSE 100 firm edged 3p higher to £16.58 after it said discount fast-fashion chain Primark had an ‘encouraging’ start to the year and its store-opening schedule remained on track.
In a brief update just weeks after delivering better than expected results for the year ended 17 September, the foods-to-fashion combine behind budget clothing chain Primark and the Kingsmill and Twinings grocery brands said the outlook for the current financial year was ‘unchanged’.
COST VOLATILITY ABATES
Associated British Foods still expects ‘significant’ growth in group sales this year, although as previously guided adjusted operating profit and adjusted earnings per share are anticipated to be lower year-on-year.
Chairman Michael McLintock said his charge continues to expect ‘further significant input cost inflation’, but the welcome news is the volatility of input costs has ‘diminished’ giving investors more visibility and making it easier for management to plan for the future.
PRIMARK’S POSITIVE START
Associated British Foods sees the aggregate profit of its food businesses being ahead of last year and also sounded a more upbeat tone on recent trading at Primark, the value-focused fashion retailer well suited for straitened economic times.
‘At this early stage, Primark trading in this financial year has been encouraging,’ said the company. ‘We are on track to open 27 new stores this financial year, 10 of these opening in the run-up to Christmas, and to date we have opened six new stores, including one today in Angers, France.’
EXPERT VIEWS
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said many retailers will have been disappointed after Black Friday ‘but that’s not the case at Primark. In a world where consumers are tightening their belts, Primark may well be one of the winners if people looking to spruce up winter wardrobes need to do it on a tighter budget.’
Palmer continued: ‘Ultimately, this morning’s update is a rare positive in what has been a very difficult period for retailers up and down the country and shows how those offering cheaper clothing than their high street rivals might shine during an imminent recession.’
Russ Mould, investment director at AJ Bell, said Associated British Foods’ conglomerate structure ‘has been a strength in 2022 as the food and ingredients business has proved resilient, and that continues to be the case.
‘Primark is off to a strong start to the current financial year and the continued roll-out of stores is a show of confidence that the budget chain’s offering will resonate with shoppers in a difficult economic environment. It is notable the extent to which Primark is prepared to take some pain on margins to retain its bargain credentials.’
Mould added: ‘There’s no mention of the success or otherwise of Primark’s new click and collect trial as it finally dips its toe in the e-commerce waters. There remains resistance to the idea of going fully online and offering a delivery service - Primark relies on people making impulse purchases once they are through the doors - so click and collect makes sense as an initial step to having a meaningful online presence.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
