Associated British Foods Trading Update – What The Analysts Said

By Steve Wynne-Jones
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Associated British Foods Trading Update – What The Analysts Said

Associated British Foods has reported a 19% increase in group revenue in the 16 weeks to 8 January (at constant currency), with its Primark arm up 36%, and food business up 6%.

'Cash flow year-to-date has been strong compared to last year, driven by good trading,' the company said.

Here's how leading industry analysts viewed its performance:

Richard Lim, Retail Economics

"A strong boost on last year's heavily restricted sales period is great news for the retailer, but there's a sober tone to these results. In the final run-up to Christmas, the retailer was dealt a significant blow as many consumers chose the safety of their homes instead of venturing out onto the high street to avoid catching Omicron before the big day.

"Consumers are now well versed in switching online and as case numbers rose, their self-imposed restrictions were accompanied with a shift to alternative brands that could offer what they wanted. With no transactional website to lean on, Primark was left frustrated as vital sales were mopped up by their competitors."


Cathal Kenny, Davy

"Key takeaways from Associated British Foods’ (ABF) Q1-22 statement include the stronger-than-expected margin performance at Primark and the continued inflation headwinds across the non-retail businesses.

"Like-for-like (LFL) growth at Primark of 36% was strong and reflected a fully opened estate, with the rise of Omicron in December negatively impacting footfall in the final weeks (since recovering). Non-retail segments grew by 6% in aggregate, with input cost and supply chain inflation appearing more acute. Full-year guidance is unchanged, and we therefore envisage no material changes to our forecasts."

Anubhav Malhotra, Liberum

"AB Foods reported a solid 1Q’22 with group sales up 16% yoy and up 1% over pre-pandemic levels. Primark sales declined -11% LfL vs. two years ago as footfall was impacted by Omicron, but Primark is seeing the impact reduce in recent weeks.

"Primark’s profitability has improved further with 1H’22E operating margins expected to be >10% despite the LfL sales decline, which bodes well for future when footfall normalises. Full year guidance at group level has been maintained although Food businesses are seeing cost inflation and margins at Grocery and Ingredients will decline in 1H’22E. We expect AB Foods to deliver consistent double-digit shareholder return over the next few years, and at 16x forward PE and 7x EV/EBITDA, the risk-return profile appears very attractive."


Walid Koudmani, XTB

"[This] trading update continues to paint an optimistic picture for ABF as most of its sectors registered a marked improvement compared to the previous report thanks to generally better global conditions coupled with a decrease in COVID restrictions.

"Nevertheless, a key issue that remains in focus is the rising cost of goods and services, along with the growing pressure brought on by the increase in fuel prices, which the company said it will endeavour to offset."

Sam O’Brien, affise

“Primark’s continuing insistence not to launch an e-commerce offering – despite taking an 11% hit on like-for-like sales – could be the start of the end for the beloved brand. The retailer has reported that sales performance at stores that remain open is varied, as less tourism and more people working remotely continues to hammer footfall within the brick and mortar stores.

“During the continued lockdown periods throughout the COVID-19 pandemic, an online e-commerce presence would have preserved significant amounts of lost revenues and potentially consumer advocacy. It would even have been a perfect opportunity for the chain to pilot an online store to limited regions.


“If Primark continues to ignore online e-commerce, they could go the same way, despite their popularity."

Darcey Jupp, GlobalData

“Primark continues to champion in-store retail, planning to further expand its store fleet to cover 16 markets by the end of FY2021/22, with its first entry into Romania and Slovakia.

"However, despite many consumers continuing to shop for clothing & footwear online more post-pandemic, favouring the convenience and flexibility, Primark remains adamant that its updated website relaunching in the UK by the end of March will remain non-transactional, instead focusing on showcasing a higher proportion of its offer online alongside instore product availability information.

"However, its resistance is likely to still prove its main handicap in the future, as GlobalData forecasts European online penetration of apparel and footwear to continue to increase, from 28.2% in 2021 to 33.5% in 2025. The boom of low-priced online pure-plays such as has also proven there is a strong appetite for value apparel online, and that this can be profitable."


Warren Ackerman, Barclays

"LFL growth was down 11% (in the 16 wks to Jan 8) with the UK -10%, Europe -14% and the US +4%. This decline largely relates to the impact of Omicron with many people self-isolating resulting in lower high street footfall coupled with a lack of tourists. Two weeks ago the UK was flat and -5% last week.

"We think with UK government removal of Covid restrictions soon could mean that -5% in the UK last week is a good run rate looking forward. Europe is behind the UK in terms of removal of restrictions but even here we think LFLs have bottomed.

"With the prospects of Primark stores all remaining open, more mobility, summer holidays and returning tourists, this bodes well for Primark's LFL outlook. Margins are also ahead of expectations helped by a recovery in sales densities. The new Primark website enabled by the Oracle ERP system will allow (for the first time) customers to see stock availability by store using a traffic light system. Primark are also proposing a simplified in store management structure likely to result in job reductions helping operating costs."

© 2022 European Supermarket Magazine – your source for the latest A-Brands news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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