Primark sales growth slows after ‘outstanding’ start to the year

Associated British Foods said sales growth slowed at its Primark clothing chain as business conditions returned to normal after an “outstanding” start to the year.

The stock fell as much as 2.6%, the biggest intraday drop since Sept 7. Sales at Primark, which trades as Penneys in Ireland, will rise about 23% in the period ending Mar 2, slowing from 25% in the first 16 weeks, London-based AB Foods said.

The full-year outlook is unchanged even as first-half profit will beat the firm’s expectations, AB Foods said.

Primark revenue benefited from a cooler start to autumn, after a warm season a year earlier, and a strong Christmas, finance director John Bason said.

Still, he said he sees Primark’s 7% same-store sales growth “probably easing” for the remainder of the year.

Primark’s slowing sales “will catch the headlines,” Martin Deboo, an analyst at Investec in London with a hold recommendation on AB Foods said. Same-store revenue growth weakened to about 5% in the second quarter, he estimated.

The stock fell 0.4% to 1,822p in London trading, paring this year’s gain to 17%.

First-half operating profit will be higher than last year, while earnings per share will be “substantially” ahead, the firm said. Expectations for the year remain unchanged, with growth being weighted “heavily” toward the first half.

Primark’s first-half strength will be partly offset by the sugar division, where profit will probably be lower because of a decline in China and a charge for mothballing two plants in the Asian country, said the company. Sugar profit is also likely to decline for the year, it said, citing reduced production, a higher beet cost, and a weaker euro in the first half.

Agriculture profit will show “further progress” in the first half, the company said, while earnings at the grocery unit will be “substantially improved” as last year’s restructuring costs in George Weston Foods in Australia and Allied Bakeries are not repeated.

“I really do” think George Weston has turned a corner, Bason said.

Ingredients sales in the first half will be “in line” with last year as the firm introduced new products in bakery, feed, and speciality enzymes, AB Foods said.