Primark success boosts Associated British Foods

DISCOUNT clothing chain Primark’s continuing popularity will push first-half profits at Associated British Foods ahead of last year, the conglomerate said, though growth in sales of the retailer’s cut-price fashions has slowed a touch.

AB Foods said yesterday adjusted operating profit for the six months to March 2 would be higher than last year ’s £412 million with earnings per share “substantially ahead” of the same period’s 34.4 pence last year. However, the company said its f ull - year forecast was unchanged because Primark’s performance would be offset by a fall in profits at its sugar business, where sales in China were declining.

AB Foods relies on Primark for about one-third of its profit, with sugar and groceries making up the other two-thirds. In addition it said tough second-half comparative numbers meant Primark’s full-year underlying sales growth was expected to be less than 7%.

With Britain facing a possible triple-dip recession, many retailers have been finding the going tough as consumers fret over job security and a squeeze on incomes. Primark, with its focus on low prices, has been one of the few to buck the gloom.

AB Foods forecast Primark’s first-half sales to be 23% ahead of the same period last year, helped by 15 new store openings. Sales at stores open more than a year were seen up 7%.

While underlying sales growth at Primark is well ahead of that being achieved by rivals, such as Next, it does represent a slowdown on growth of about 9% in the first 16 weeks of the half, as reported in January.

“Primark has not stood still,” finance director John Bason said. “Primark has continued to improve the range of clothing that it offers, the fashionability and the store environment.

“I think we are getting new consumers,” he said.

Primark’s profit margin was also much higher, reflecting the benefit of lower cotton prices and better trading.

Shares in AB Foods, which have increased by more than 50% over the past year, were down 15p or 1% at 1815 pence valuing the business at about £14.5 billion.

“The shares have had a stunning run over the past 12months from circa 1100 pence at the start of 2012 … we think the stock is due a pause for breath,” said Panmure Gordon analyst Graham Jones.