ABF: Primark Sales Impacted by Unfavorable Weather

On Thursday, Associated British Foods (LON: ABF) released an update on its trading performance during the second half of the financial year ending September 14, 2024.

While the company delivered strong topline growth, improved profitability, and excellent cash generation, it revealed that Primark's sales have been impacted by unfavorable weather conditions in the UK and Ireland.

However, robust growth in other markets and new store openings have driven good overall sales.

Primark revenue growth is expected to be around 4% in the second half, driven by store expansion. However, like-for-like sales are projected to decrease by approximately 0.5%, primarily due to lower footfall caused by unfavorable weather.

While volumes were soft, ABF said the average selling price increased due to product mix and effective markdown management.

In the UK, sales are expected to be around 0.5% lower, with like-for-like sales decreasing by around 2.0%. Primark's market share is said to have decreased slightly to 6.5% in the 24 weeks to July 21, 2024.

In Europe, excluding the UK, sales growth is expected to be around 5%, driven by store expansion. Most markets have delivered strong growth, with like-for-like sales expected to be around 0.9%.

In the US, sales growth is expected to be around 25%, with strong performance from recently opened stores and the launch of the first US marketing campaign.

Overall, ABF expects Primark's adjusted operating profit to remain unchanged for FY24. The adjusted operating profit margin is expected to be a little over 11.5%, reflecting an increase in product gross margin and reduced costs offset by higher labor costs and increased investment in digital and brand initiatives.

Meanwhile, the company's Grocery segment continued to perform well, with sales growth expected to be around 3%.

In addition, ingredients sales continued to grow, driven by the performance of AB Mauri and other speciality ingredients businesses.

Sugar profitability is expected to be lower than previously anticipated due to a reduction in European sugar pricing. ABF said that while production levels have been strong, lower prices have impacted sales and profitability in Q4.

In Agriculture, sales are expected to decrease slightly due to soft demand for compound feed in the UK and China.

For FY25, ABF expects Primark to deliver good sales growth, with adjusted operating margin remaining broadly in line with this year's level.

In Grocery, the company said it will continue to drive sales momentum, while in Ingredients, ABF expects continued growth in yeast and bakery ingredients and improved growth in speciality ingredients.

In Sugar, the reduction in pricing is expected to significantly impact performance in FY25, but profitability is expected to recover in FY26. In Agriculture, ABF expects some improvement.

ABF also announced that it intends to extend its share buyback program by an additional £100 million.