Primark positive about profits

Sales growth at the Primark discount fashion chain has accelerated over the last eight weeks as falling fuel prices boost shoppers’ disposable income, Associated British Foods said yesterday.

The group reiterated its annual earnings expectations with growth at Primark and progress at its grocery, ingredients and agriculture businesses helping to offset continued weakness in its sugar operation.

ABF said Primark’s half year to February 28 sales were expected to rise by 16% on a constant currency basis, up from 15% reported for the first 16 weeks of the period.

Cumulative sales at stores open over a year, having been negative over the first 16 weeks, were now level with the previous year, following a rise of about 4% over the last eight weeks.

Finance director John Bason said that Primark’s improved performance reflected an 11% increase in retail selling space, very high sales densities in new stores, and the recent sharp fall in petrol prices.

“Normal, ordinary families, the people who shop in Primark, suddenly every week if they fill their tank with petrol have got £20 more to spend,” said Mr Bason. “Whether it all comes to Primark is a moot point, but it’s got to help.”

Shares in AB Foods, 55% owned by the Irish-Canadian Weston family and up 8% over the last six months, were up 0.7% at 3,059 pence yesterday, valuing the business at about £24bn.

“ABF deserves a premium rating due to the medium- to long-term potential from the outstanding Primark business, plus a credible long-term growth strategy,” said Shore Capital analyst Darren Shirley which has a ‘hold’ rating on the stock.

The group said it still expected a marginal decline in adjusted earnings per share for its 2014 to 15 year from the 104.1p made in 2013 to 14, hurt by currency trends. As previously indicated, it said adjusted operating profit for the first half was expected to be lower than last year’s £497m.

Aadjusted earnings per share was forecast to be in line with last year, largely benefiting from a lower tax rate. ABF forecast its grocery division would deliver a first-half operating profit in line with last year, while ingredients and agriculture would both show progress.

However, as previously indicated, profitability at AB Sugar will be substantially lower, hurt by the fall in EU sugar prices and weakness in the world sugar price.

“In terms of the decline in the sugar price, the worst is definitely over,” said Mr Bason.

* Reuters