AB Foods hails strong Primark Christmas performance in stable update

Associated British Foods plc (LON:ABF) have given shareholders an impressive update on Thursday morning.

The firm reported a sales rise at its Primark store portfolio over the 16 weeks period, which included the festive trading session.

The update also told shareholders about an impressive rise in their sugar unit, and the ingredients sector also saw revenues increase.

AB noted that the Grocery unit did not see as significant growth as other sectors, with sales remaining flat year on year.

Primark was the standout department for the firm, were sales grew 3% year on year, which the firm attributed to a rise in Primark selling space.

In the UK, Primark sales saw growth of 4% year on year, however on a like for like basis there was marginal decline.

The company noted that it has improved its like for like sales across the entirety of its Primark Group, however exact figures were not provided.

Since its financial year end on November 14, retail selling space grew by 200,000 square feet. At January 4, Primark had 15.8 million square feet, up from 15.1 million square feet the year before.

AB told shareholders that they wanted to add even more trading space for Primark retail, which goes against the trend of other British retailers.

A rise in EU sugar prices also helped sugar revenues climb 5% year on year, which was another notable take from the update.

AB Foods continue the good run

“Retail selling space increased by 0.2 million sq ft since the financial year end and, at 4 January 2020, 376 stores were trading from 15.8 million sq ft which compared to 15.1 million sq ft a year ago. Three new stores were opened in the period: Seville Lagoh in Spain, Kiel in Germany and Milan Fiordaliso in Italy. In addition, we relocated to larger premises in Norte shopping centre in Porto, Portugal, the Norwich store in the UK was extended and selling space was reduced in two stores in Germany.”

“We now expect to add a net 0.9 million sq ft of additional selling space in this financial year. We expect to open 18 new stores together with a number of relocations and selling space will be reduced in a further store in Germany. Trading at our first store in eastern Europe, in Ljubljana, Slovenia has exceeded expectations. As previously announced, we will enter the Polish market with a new store in Warsaw in spring 2020, followed by a store in Prague, Czech Republic. We have now also signed leases for a further store in Poland, in Poznan, and for our first store in Slovakia, in Bratislava which will take Primark to its fifteenth country.”

AB Foods concluded “Sales growth in Twinings was driven in particular by herbal teas in the UK and the US, although Ovaltine sales were held back by a slow start in Thailand. Margin benefited from the tea supply chain efficiencies delivered last year. At Allied Bakeries, the operating loss was reduced with progress from cost reductions more than offsetting the loss of contribution from lower sales.”

Confidence pays off

The firm saw its shares jump in December, as they gave confident expectations to shareholders.

The firm updated shareholders by saying that the company will benefit “materially” from the increase in sugar prices and further cost reduction in its current financial year.

Speaking at the company’s annual general meeting, Chair Michael McLintok said the company expects another year of strong profit and margin growth in grocery, with Twinings Ovaltine drink in particular benefiting from a more efficient tea supply chain.

McLintock said fast fashion retailer Primark has a strong pipeline of new sites, with margin to be reduced by “only a small” amount year-on-year, hurt by a weaker pound for purchases being largely offset by lower costs in both the cost of goods and overheads.

“Our businesses have completed all practical preparations for Brexit and contingency plans are in place should our businesses experience some disruption at the time of exit,” McLintock said.

Shares in AB Foods trade at 2,625p (+2.74%). 16/1/20 10:37BST.

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