Groceries-to-fashion conglomerate Associated British Foods (ABF) puts on 30p at £30.66 after delivering an in-line interim pre-close update. Although first half operating profit will be lower year-on-year, investors like the news its high growth retail division Primark is powering ahead.
Family-controlled ABF today reiterates guidance of a marginal decline in full-year earnings per share and lower interim operating profits year-on-year, reflecting sterling's strengthening against most of ABF's major trading currencies as well as the negative impact of weak EU sugar prices on AB Sugar.
Yet this is overshadowed by news of first half profits improvement in its agriculture and ingredients divisions, 'excellent profit progress' from the Twinings Ovaltine business. Budget clothing chain Primark, the jewel in the ABF crown, continues to perform well with European expansion continuing apace.
At constant currency, Primark's sales grew 16% year-on-year, driven by an increase in retail selling space and 'very high sales densities' in recently-opened stores spanning France, Germany and the Netherlands. Unseasonably warm weather across northern Europe and the cannibalisation impact of new store openings in the Netherlands and Germany crimped overall first half like-for-like sales growth and hit margins due to increased mark-downs, yet Primark enjoyed brisk business over Christmas and a second quarter uplift in like-for-like sales.
Shore Capital estimates like-for-like growth of around 4% through January and February, encouraging given the subdued same-store growth rates flagged for the opening 16 weeks of the year in January.
ABF also highlights progress in building a management team in the US ahead of Primark's ambitious launch across the pond later this year. Eight leases for stores in the north east of the US have been signed, including seven from department store Sears (SHLD:NDQ), a relationship that should help Primark gain traction in the USA.