Associated British Foods, the company behind budget retailer Primark, has said a stronger pound and dollar would have a bigger-than-expected hit on full-year earnings and could weigh on profits in its new financial year.
The company, which makes more than half its annual profits from Primark and also has sugar and ingredients businesses, said yesterday exchange rate moves would knock around £30m (€42m) off operating profit for the year ending September 12, up from its previous estimate of £25m.
The impact in its new financial year could be greater, if current rates persist, it added, pointing in particular to the strengthening of the pound and dollar against the euro.
However, the group maintained its guidance for a modest decline in adjusted earnings per share for this financial year, due largely to a drop in European sugar prices.
At Primark, AB Foods tends to buy clothes from Asia in dollars before selling them increasingly in euro, as it expands in countries such as France, Germany and Spain.
Shares in the company, which has a market capitalisation of around £25bn, were down 1.9% in early trading yesterday, the biggest fall on the UK’s benchmark FTSE 100 index.
“There’s a little bit more caution on the FX front,” Numis analyst Charles Pick noted.
AB Foods said it was working to minimise the impact of adverse exchange rates.
“A good proportion of the impact has been successfully mitigated by our buying teams as they firm up orders for next year,” AB Foods said in its statement.
For the year ending September 12, analysts are forecasting adjusted earnings per share of 98.3 pence, down from 104.1 pence the year before.
Primark’s progress is on track, AB Foods said, with the retailer due to open its first US store in Boston on Thursday. AB Foods will report its full-year results on November 3.
“The group remains very cautious on the impact of currency, especially movements in emerging market currencies in recent weeks,” noted Jack Gorman of Davy Stockbrokers in Dublin.
He also noted the 13% sales growth, in constant currency terms, delivered by Primark in the final quarter of ABF’s financial year.
“The acceleration in like-for-like, after a flat first nine months, reflects good underlying trading and a reduced effect from the opening of new German and Dutch stores on existing stores in the region,” said Mr Gorman.
“Very high sales densities continued to be delivered in its French stores. Spain, Portugal and Ireland performed very well through the year and the UK delivered a positive like-for-like outturn, notwithstanding softer autumn and spring weather.”
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