Confident Primark owner ups sales forecast

Primark owner Associated British Foods (ABF) expects its interim sales to rise by a fifth against last year after consumer spending was “more resilient” in the period than expected.

Sales at Primark – which is by far the company's biggest revenue stream – should come in at £4.2bn for the six months ending 4 March, a 19 per cent uplift on 2022. This was driven by higher selling prices and volumes, as shopper footfall improved against the pandemic-hit comparative period. 

There was good news for sales across ABF's other divisions, too. Management expects grocery sales to rise by 10 per cent, sugar sales to jump by a quarter, and the agriculture and ingredients divisions to post growth against last year.   

Unsurprisingly, the company has become more bullish on trading hopes for its full year to September. It now forecasts that adjusted operating profits and earnings per share will be in line with last year, after previous guidance pointed to a drop.

While management flagged that ABF was still facing “significant cost pressures”, it noted that the business is benefitting from less volatile inflation and a fall in some commodity prices.

But a challenging cost environment is still dragging down margins. While the half-year adjusted operating profit margin for Primark is expected to come in at more than 8 per cent, this compares to a 12 per cent margin last year. Elsewhere, there has been margin "erosion" in the grocery business, while the sugar margin is projected to fall due to higher energy and wheat costs. The company's cash balance is down £900mn year-on-year as a result of "rebuilding" its Primark inventories from "unusually low levels a year ago", the share buyback programme and growth spending. 

Shore Capital analysts provisionally upgraded their full-year earnings per share forecast by 11 per cent on the back of the update. They said that management's cheery Primark narrative, with trading ahead of expectations across all markets and the highlighting of a good consumer reaction to spring and summer product ranges, "could be a notable boost to investor confidence". 

The shares rose by 2 per cent in early trading. They have climbed by more than a fifth year-to-date.

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