Shares in Associated British Foods (ABF) gained 2.3% to £23.56 as the foods-to-fashion conglomerate said it expects to take a bigger sales hit in its Primark business than previously thought due to lockdown, but also sees sales and profit being higher than last year.
In an AGM trading update, ABF raised its estimate for lost sales at Primark to £430 million from £375 million previously owing to temporary store closures during the November lockdown, but still expects Primark’s full year 2021 sales and profit to be higher than last year’s £362 million.
Primark stores across its major markets including the Republic of Ireland, England, France and Belgium have reopened in the last week, and sales since reopening in each of these markets has been ‘very strong’ the company said.
ABF has extended the opening hours during the festive season in most of its stores in the Republic of Ireland and England to cater for the ‘anticipated higher customer demand’ and to ‘help ensure a safer environment’ by spreading shopping hours over a longer period.
All Primark stores in Northern Ireland and Austria remain shut however, with a total of 34 stores temporarily closed.
While in the company’s foods division, ABF said its sugar business is still expected to deliver a higher profit driven by its Illovo brand, despite the company forecasting UK sugar production of 900,000 tonnes, lower than previously expected and well down on last year’s 1.19 million tonnes, owing to the severe impact of virus yellows disease on sugar beet.
AJ Bell investment director Russ Mould said the retail sector is ‘praying for a good Christmas sales period’ and pointed out this is particularly important for Primark given its lack of online business, with the company taking advantage of rules over extended opening hours to keep some of its stores open 24 hours a day.
But Mould also said ABF’s non-Primark businesses have provided important diversification this year and help give the company a ‘competitive edge’ over other retailers by not being reliant on one sector.
He said, ‘The company’s interests in grocery, food ingredients and agriculture have provided a safety cushion this year and trading in the non-clothing activities has been very promising.
‘For years people have asked why ABF doesn’t separate Primark into a standalone entity. This year has given the answer – diversification really pays.’
While analysts at Shore Capital remain keen on the company and said, ‘ABF has a high quality stable of global and local grocery brands, a global sugar business that is well positioned to deliver sustainably higher profitability over the medium term and a Primark business that remains both potent and immature across much of Europe and the USA (where growth is accelerating).
They add that ABF’s future is ‘well underpinned’ by a strong balance sheet with around £1.6 billion in net cash pre leases, which provides ‘considerable comfort and security.’