- UK like-for-likes down in Christmas quarter
- ‘Cautious’ shopper, mild weather blamed
- Grocery brands growing overseas
Foods-to-fashion giant Associated British Foods (ABF) delivered a disappointing first quarter trading update with weak UK sales at Primark driving a sales growth guidance reduction for the retail jewel in the conglomerate’s crown.
Analysts downgraded their group profit forecasts on news of subdued sales at Primark over the Christmas quarter, sending shares in the FTSE 100 combine down 2% to a 52-week low of £18.98.
However, the share price damage might have been worse had the diversified company not left guidance for its food divisions unchanged.
GROWTH GUIDANCE DOWNGRADE
Group sales fell 2.2% to £6.73 billion in the 16 weeks to 4 January 2025, with all of Associated British Foods’ divisions seeing sales declines at actual currency rates.
But the big letdown was the 6% drop in Primark’s UK and Ireland like-for-like sales, which was blamed on ‘cautious consumer sentiment’ and mild autumn weather, which led to a weak October and November.
‘Sales in the UK and Ireland declined in the period, with growth in like-for-like sales over the key Christmas period more than offset by weaker autumn trading in a challenging retail environment,’ explained Associated British Foods, though the company was at pains to point out Primark delivered good growth across Europe and in the US.
With UK consumers under significant financial strain, Associated British Foods trimmed its 2025 sales growth guidance for Primark from mid-single-digit to low-single-digit percentages.
Reassuringly, the budget clothing chain’s adjusted operating profit margin is still expected to remain broadly in line with last year’s level.
BIG BRANDS DO THE BUSINESS
Outside of Primark, Associated British Foods’ other divisions were largely stable, with the exception of its sugar business, which has been a weak point for some time.
Management highlighted grocery revenue growth of 1% in the quarter, reflecting good growth in the international brand businesses driven by Twinings and Ovaltine, which partially offset declines in certain US and UK-focused brands.
Sugar sales declined 2%, with good sales growth in Africa offset by a decline in European sales prices, as expected.
EXPERT VIEWS
Begbies Traynor’s (BEG:AIM) Julie Palmer said Primark has continued its international expansion, but its performance in the UK and Ireland has been more challenging, ‘with unseasonable weather negatively impacting footfall and contributing to a decline in UK sales. While its value-focused appeal over Christmas offered some relief, it could not offset the broader challenges of a high street weighed down by weak consumer confidence’, she explained.
AJ Bell investment director Russ Mould commented: ‘When Primark says UK sales are weak, you know there has been a change in shopper behaviour. People might still be visiting its stores but they are being more selective and that’s a problem when the business model is built on shifting high volumes of goods.’
Mould continued: ‘Retailers love to blame the weather when things don’t go well. While the UK autumn was relatively mild, winter has been bitterly cold so Primark should still have been able to shift plenty of jumpers and coats in recent weeks, albeit the last couple of weeks fall outside of the reporting period to 4 January for the trading update.
‘It’s situations like now where Primark’s parent company benefits from its conglomerate structure. While the retail arm has been weak, the ingredients arm has come to the rescue and that’s why the share price hasn’t tanked on the update.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
