Shares in Primark owner Associated British Foods (ABF) dip 2% to £22.67 as a 2% decline in like-for-like sales at the budget retailer is worse than the 1.6% dip expected by analysts.
Over the last year, shares in the company have slipped 17.3% as like-for-like Primark sales have been impacted by a tough retail environment and its UK and Spanish sugar businesses being hit by lower EU contracted prices.
The company says profit is expected to be ‘well ahead’ at Primark in the six months to 2 March, while sales are expected to be 4% higher as a result of increased selling space.
‘The UK continued to perform well and we substantially increased our share of the total clothing, footwear and accessories market,’ comments Associated British Foods.
The company plans to open new stores this financial year in the UK, including Hastings and Milton Keynes, as well as France, Belgium and Germany.
TROUBLES REMAIN IN GERMANY
In the US, Primark is performing well thanks to ‘excellent trading’ at its new store in Brooklyn, but difficulties remain in Germany.
‘While the troubles aren’t ‘new’ news, it seems odd that the proposition isn’t resonating with this geographical segment of shoppers. The fact that the country is experiencing economic weakness should really play to Primark’s strengths given its low pricing point,’ says AJ Bell’s Russ Mould.
According to broker Shore Capital, the 3% decline in like-for-like sales in Europe was almost entirely driven by Germany where sales dropped 10%.
Mould argues Associated British Foods benefits from having a diverse range of businesses as this can act as a cushion if one part of the company does less well than others.
On a group basis, sales are expected to grow across the board with the exception of the sugar division. Net cash is forecast to be £300m at the half-year stage, up from £123m a year earlier.
