Penneys' owner does not expect significant disruption from Red Sea situation

Like for like sales in Penneys grew by 2.1% compared to the same period last year driven by higher average prices. 

Penneys parent company ABF foods has said it does not expect the situation in the Red Sea to have “any significant disruption” to the retailer’s supply chain as it reports “strong” trading over the Christmas period.

Global trade is facing major challenges in the Red Sea where Iran-backed Houthi rebels have been escalating attacks on commercial ships for the last months over the war in Gaza.

The Red Sea is one of the world’s most crucial shipping lanes accounting for approximately 12-15% of total global trade.

In its latest trading update, Associated British Foods (ABF), Penney’s parent company, said the retailer's sales were “good overall” in the 16 weeks up to January 6 despite a slow start, due to unseasonably warm weather.

The company said that “strong Christmas trading” also made up for the slow start.

According to the company, Penneys - Primark outside of the Republic of Ireland - like-for-like sales grew by 2.1% driven by higher average selling prices.

“Our product offer performed well in the period. Sales of womenswear and menswear were strong particularly in performance wear, leisure and tailored clothing and in our Rita Ora collection,” said ABF.

“Sales of our Christmas ranges were also strong and sold through well.” 

Due to recent cold weather, the company's sales in its cold weather categories have started to improve.

In the UK, Primark’s total sales rose by 4.5% with like-for-like sales up by 3.8%.

In Europe, excluding the UK, total sales in the period rose by 8.1%, with like-for-like sales up by 1.3%.

The company said that performance was “mixed” with some countries trading well and others impacted by local economic conditions.

Sales in the US grew by 45% in the period driven by new store openings.

ABF said the retailer exited this period with “with stock levels in a good position”.

“We continue to monitor the situation in the Red Sea but at this stage we do not expect any significant disruption to our supply chain,” the company said.

The company said it is “confident” in the delivery of Penneys adjusted operating margin in this financial year which it said should “insulate” it well against potential additional costs of supply due to the disruption in the Red Sea should they arise.

Outside of its Penneys operations, ABF has business operations in groceries, ingredients, agriculture, and sugar.

The company said overall it “continues to trade well” and that it looks forward to a year of “meaningful progress in both profitability and cash generation”.