AB Foods raises outlook despite weaker Primark sales
By Frank Prenesti
Date: Wednesday 29 Jun 2022
(Sharecast News) - Associated British Food raised its full-year profit outlook as weaker-than-expected fourth-quarter sales at Primark were offset by strong profit margins in the fashion business and a solid performance from its food and sugar divisions.
AB Foods said adjusted operating profit for its 2020-21 fiscal year, before repayment of job retention cash, would be marginally above last year excluding the benefit of a 53rd week this year. It had previously forecast it to be in line with the previous year's £1bn.
Covid-19 restrictions in Primark's major markets to stymie the surge in the Delta variant hit shopper numbers, but the company said it had seen a "significant" improvement in trading as the period progressed, from a weekly decline in like-for-like sales of 24% at the start of the period to a decline of 10% in recent weeks.
The company added that fourth-quarter adjusted operating profit for its food businesses and discount clothing retailer Primark were anticipated to exceed its expectations, with sale expected to be around £3.4bn. However it warned that fourth quarter Primark like-for-like sales would be down 17% on two years ago.
AB Foods saw "very strong trading" in the third quarter after reopening stores but was hit by a change in consumer sentiment as more people were "pinged" over potential Covid cases.
"In the UK our sales were affected by the rapid and significant increase in late June and early July in the number of people required to self-isolate following contact tracing alerts - the 'pingdemic'," the company said in a statement.
"Data shows that high street footfall was impacted by the caution displayed by many consumers at that time. The self-isolation rules were then eased in early August.
"Correspondingly, like-for-like sales showed a consistent improvement through the period from a decline of 24% in the first four weeks of the quarter to a decline of 8% in the last four weeks."
It added that it is currently experiencing "some delays" to the stock of autumn/winter season inventory due to "port and container freight disruption".
Covid-19 restrictions have also "held back" the company's progress on developing its pipeline of new stores, with difficulties in assessing and evaluating new sites and negotiating with potential landlords.
Grocery revenues were expected to be ahead of last year, receiving a boost from growth in its Twinings and Ovaltine drinks businesses.
The company said its AB World Foods, Silver Spoon and Westmill businesses saw sales significantly ahead of pre-pandemic levels and continued their sales bounces from last year. However, sales reduced at its Allied Bakeries arm - which makes Kingsmill bread - after the end of a supply deal for the Co-op supermarket chain.
AJ Bell investment director Russ Mould said the company was under pressure to sustaining its store rollout "when you consider that Primark doesn't sell its products online".
"On that front, it is interesting to see the company announce plans to launch a new website but there is no sign that this will be a transactional one. Historically it has used the online channel just to showcase products and the new plan seems to be centred on letting customers see which products are available on a store-by-store basis."
"Knowing if something is stocked in your local store or not is useful if you want to avoid a wasted trip into town, but equally it's a lost opportunity for Primark to sell them something else. Just remember its success has been led by people visiting its stores, browsing the aisles and walking out with products they weren't initially intending to buy."
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