Primark profit set to top forecast

Associated British Foods said Primark's annual profit would at least reach the top of guidance after strong trading at the clothes chain in the fourth quarter.

ABF said in the latest four-week period for UK market data Primark had its highest ever value and volume shares for this time of year. The company's food businesses also exceeded expectations in the fourth quarter.

The company's shares rose 2.7% to £20.82 - their highest since before the Covid-19 lockdown started in March.

Primark's operating profit excluding exceptional charges for the year to 12 September will be at the top end or better of the stated £300m-£350m range compared with £913m a year earlier, the FTSE 100 company said in a trading update.

Profit will be much lower than the year before because Primark, which has no online sales operation, was forced to close all its stores in March. Stores reopened gradually in May, June and July and Primark's sales since reopening are expected to be £2bn.

ABF said the average basket size at Primark was much higher than a year earlier soon after reopening reflecting pent-up demand. Trading has settled down but is still higher than the year before. Markdowns have been limited, it said.

Grocery, sugar, agriculture and ingredients revenues all rose, resulting in strong profit increases. Revenues were boosted by higher sales of Twinings teas, yeast and bakery ingredients. Sugar revenue was helped by an increase in EU sugar prices.

ABF said: "Trading in the fourth quarter in both our food businesses and Primark exceeded our expectations. All Primark stores reopened during May, June and July and trading during the fourth quarter has been strong."

Russ Mould, investment director at AJ Bell, said Primark's performance was impressive but that the budget fashion chain's fortunes were linked closely to how Covid-19 develops in coming months.

"Primark needs a measure of normality to do well. Its low ticket business model is not a proposition that seems likely to translate well to the internet and the company has not gone down this route, not even considering it at the height of the coronavirus restrictions," Mould said.

“A return to nationwide lockdown or just more restrictive measures would significantly undermine the recent sales momentum."