- Warm weather hurts retail trading
- Limited supply chain disruption from Red Sea issues
Associated British Foods (ABF) struck an optimistic note about its prospects for the rest of the year after reporting a mostly positive first quarter update, with the Primark owner expecting to make "meaningful progress in both profitability and cash generation".
For the 16 weeks to 6 January, a strong showing at Primark against tough comparatives drove total revenue up 2.8 per cent to £6.89bn.
Primark revenues grew 7.3 per cent to £3.38bn as the division achieved a record market share and eight new stores opened their doors. The sugar division took second place on the growth podium, with an uplift of 3.8 per cent taking revenue to £825mn.
Retail trading was hit by unhelpful warm weather at the start of the period, with cold weather product sales taking their time to get going. The impact of this was seen in the division's lowly like-for-like revenue growth of 2.1 per cent, although prior year trading was boosted by Royal Mail strikes.
With gross margins expected to improve, management is now more confident about delivering a full-year adjusted operating margin of more than 10 per cent at Primark. And investors will be relieved that the company expects no significant retail supply chain troubles from ongoing shipping disruption in the Red Sea.
While grocery revenue was up 1.8 per cent to £1.41bn, aided by edible oils and tea product progress, there was less positive news at the company’s two smallest divisions. Agriculture revenue fell 12.1 per cent to £572mn in a context of struggling demand for animal feeds, although the company pointed to “signs of recovery” in its compound feed markets. Over at the ingredients division, revenue was down 2.8 per cent as customers kept destocking.
Last IC view: Hold, 2,253p, 7 Nov 2023
