AB Foods maintains guidance as Xmas sales exceed forecasts
By Frank Prenesti
Date: Thursday 17 Jan 2019
(Sharecast News) - Primark owner Associated British Foods maintained full-year guidance, reporting revenue growth in the Christmas period in all of its businesses apart from sugar.
The group said revenue from continuing operations for the 16 weeks to 5 January, was 2% ahead of the same time last year at constant currency.
AB Foods said it expected adjusted operating profit and adjusted earnings per share for its 2018-19 financial year to be in line with the £1.40bn and 134.9p made in 2017-18.
Sales at Primark were 4% ahead of last year, at both constant currency and actual exchange rates, and with a higher operating profit margin, profit was well ahead.
"Sales growth was driven by increased retail selling space partially offset by a modest decline in like-for-like sales," the company said, with UK sales up 1% in a market that declined year-on-year, enabling it to grab a significantly larger share of the total clothing market.
"Like-for-like sales in September and October were ahead but reduced footfall affected sales in November. Sales over the Christmas trading period exceeded our expectations."
Sales in the Eurozone were 5% ahead of last year at constant currency with growth strong in France, Belgium and Italy, and improving in Spain while trading was softer in a tough German market, the company said.
US were "well ahead", benefitting from "very strong" trading at the Brooklyn store that opened last July. US operating profit margins increased in the period as purchases had been contracted at a weaker US dollar exchange rate than last year, along with better buying and tight stock management. Operating profit for the full year is in line with management expectations.
Sugar revenue from continuing operations was 12% behind last year at constant currency and 14% behind at actual exchange rates.
Lower revenue in the UK and Spain was due to lower EU sugar prices for contracts negotiated at the end of last financial year, though there were "early signs of recovery in EU sugar prices".
It added that its UK campaign was progressing well and production would now be down to 1.15m tonnes from 1.37m as a result of higher sugar content in the beet, where yields are lower than the record level last year.
Grocery sales were 3% ahead at constant currency, 2% ahead of last year at actual exchange rates and operating profit margins on an underlying basis improved.
ABF shares, having slid around a quarter last year to hit a five-year low in late December, were up more than 5% to 2,306p on Thursday morning.
JPMorgan Cazenove said the Primark commentary on the US was "very solid", with management pleased with performance and now expecting a much reduced loss in the region, while overall margin commentary was "broadly unchanged".
On sugar, "on balance commentary is more positive in our view", with early signs of recovery in EU prices and a reduction in the beet price paid to Spanish growers now been agreed. "Whilst China is, unfortunately, now expected to be loss making in the current year, this business is small relative to Europe."
Whilst the stock has rallied versus recent lows, this move has been below the sector bounce, Cazenove analysts noted, suggesting the "overall reassuring statement (particularly in light of more mixed recent news flow) should send the shares higher today".
Goldman Sachs said that, all else being equal, these results "imply no material change" to the current consensus full year forecast of PBT of £1,374mn and 136.3p EPS.
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