AB Foods released an upbeat fourth quarter trading update on Tuesday pointing to growth across their food business and robust Primark sales.
AB Foods shares have staged a material rally over the past year and are almost 50% higher over the past 52 weeks. Today’s announcement validates this rally.
Primark reported strong like-for-like sales growth of 8% in the fourth quarter, driving its overall outlook higher than previously expected. The fashion retailer, owned by Associated British Foods, said it now expects full-year sales to be around 15% ahead of last year with 9% like-for-like growth.
Despite challenging weather in the UK and Europe, Primark’s fourth quarter sales in the UK rose 8% with 7% like-for-like growth. Sales in Europe excluding the UK jumped 18% with 9% like-for-like growth.
Parent company ABF said it now expects Primark’s full-year adjusted operating profit margin to be around 8%, higher than previously thought. It attributed the better margin to strong sales growth and carefully selected price increases that helped recover high inflationary input costs.
In food, AB Foods said its grocery division is expected to see significantly higher full-year adjusted operating profit compared to last year. The company’s sugar business also performed slightly better than expected in the fourth quarter. ABF said it now expects full-year adjusted operating profit for sugar to be modestly above last year.
ABF also pointed to Primark’s overseas store expansion, digital development and celebrity collaborations as driving the fashion retailer’s sales growth. It opened 8 new Primark stores in the fourth quarter and expanded its click-and-collect service.
“Not all retailers are made equal. Primark expects to report a 15% increase in sales for the full year, largely driven by price increases,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“The group’s savvy model means that starting with bargain prices allows more room to pump up price tags before putting consumers off in this very tough economic climate.
“The cost-of-living crisis hasn’t stopped customers from flocking to new stores either, which is a direct contradiction of the fortunes of many other large physical retailers who are closing their doors – not opening new ones. For all this to be possible Primark has to have a laser-like focus on its ranges and make sure it’s offering precisely what people want – there is no room for wasted hanger space. This seems to be being executed near perfectly, and is also being supported by Primark’s digital pivot.”
AB Foods shares were 0.8% to the good at the time of writing on Tuesday.