ABF misses forecasts as Primark hit by German slowdown
Like-for-like sales at the Primark retail arm of Associated British Foods fell 2% in the first half of the year but the conglomerate's full year guidance remained unchanged.
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While AB Sugar sales have been strongly diluted by the new EU price regime, the other divisions all grew their turnover, with total Primark revenue up 4% at both constant currency and actual exchange rates thanks to more selling space. On average, City analysts were forecasting growth of 4.8%, with a 1.6% LFL decline at Primark.
Primark profit margins are still expected to be "well ahead" of the same period last year and full year guidance was unchanged, with early trading of the new spring/summer range "encouraging".
Group adjusted earnings per share for the half-year are expected to be "broadly in line" with a year ago, with lower net financial expenses offsetting a small reduction in adjusted operating profit, and EPS flat for the full year. Net cash is expected to come in around £300m at the half year, versus £123m a year ago.
LFL retail sales were weakest in Germany, leading the eurozone to a show a decline of 3% for the period, despite strong expansion in Spain, France, Italy and Belgium that is expected to lead to top-line growth of 5% for the region. In Germany there have been management appointments and the plan is to reduce selling space at some stores to optimise costs and produce "focused marketing to address trading which continues to be difficult".
Total UK sales from Primark were up 2% and "substantial" market share gains were made in a market that is also known to be difficult, with cumulative LFL sales for the half-year improved since the trading update last month but only flat on last year.
Primark in the US was said to have performed "strongly", with LFL sales growth and a "much reduced" loss after selling space was cut in two stores last year.
In the Sugar division, sales are down in line with previous guidance, there will be a "marginal" loss for the first half.
Agriculture revenues will be higher but profits down due to closure of a bioethanol plant.
Ingredients revenues and profits are both expected to improve, with growth in sales of protein crisps and price increases in a number of markets.
ABF shares fell 1% to 2,289p in the first hour of trading on Monday morning, where they are down more than a third from their late 2015 high and up 13% from December's five-year low.
Broker Shore Capital called it a "solid" trading update, with "few if any surprises".
Liberum also went with "solid" and continues to like the shares for the "compelling exposure to secular growth trends in retail over the next 10 years", while Sugar profits trough in the current year and start to recover in the next.