AB Foods – results slightly better than expected

Associated British Foods, owner of Primark, has announced a pre close trading statement:

Retail sales expected to be around £9.0bn, 15% ahead of sales last year with like-for-like sales growth of 9%
Good growth in Grocery, Ingredients and Sugar
Outlook for this financial year is slightly better than previous expectations of Group adjusted operating profit to be moderately ahead of last year

Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, commented:

“A strong performance from AB Food’s non-retail divisions has led to a modest increase to profit expectations for the year. Sales remained strong at Primark, which is impressive given the tough economic environment and unhelpful weather conditions, although margins were slightly weaker than expected due to higher theft.

Encouragingly, the inflationary headwinds for Primark appear to be abating. The group expects Primark’s margins to recover strongly next year driven by lower material costs, a weaker US dollar and lower freight costs, all of which have improved in recent weeks. This should help drive a stronger profit performance next year, even if pressures on the consumer persist.

The sales performance from Primark this year has been very solid. This is impressive given the recent demise of Wilko’s and the travails of other High Street brands. It shows that the High Street isn’t dead and shoppers still love a bargain, but you need a brand that resonates strongly with consumers. Primark has that. This should leave it strongly positioned whichever way the economic winds blow.”