Associated British Foods Plc raised its full-year earnings forecast as growth of the Primark discount fashion chain compensates for a slump in sugar sales and cushions the effect of a stronger pound.
Adjusted earnings per share for the year through September should be up on the previous 12 months, the London-based company said today in a statement. It previously forecast a figure at similar levels to the 2013 financial year.
AB Foods shares have surged by more than a fifth this year as Primark sales soar across Europe and the retail chain plans to open stores in the US for the first time. Primark is crucial to AB Foods, accounting for more than 40 per cent of operating income at a time when sugar earnings are slumping.
“The fact that it’s able to deliver the upgrade in the face of worsening sugar prices and strengthening sterling just underpins how strong Primark is,” said Jack Gorman, an analyst at J&E Davy Holdings Ltd. in Dublin. “Growth is only set to accelerate over the next two years as sugar hopefully stabilises and Primark keeps growing.”
Warm Weather
Primark sales rose 19 per cent in the 16 weeks ended June 21, the company said. Revenue at the sugar unit fell 26 per cent as European Union prices continued to fall. Group sales were down 3 per cent, also hurt by the strength of sterling. Stripping out currency shifts, revenue increased 3 per cent.
Gorman estimates that Primark will account for 60 per cent of group profit in the financial year ending 2015, with sugar contributing 15 per cent. That’s down from 47 per cent in 2012.
“Strong” sales at Primark stores open at least a year in the third quarter were driven by “the warm weather, especially compared to the very cold months of March and April last year,” AB Foods said.
The chain’s like-for-like sales grew 8 per cent in the quarter, Exane BNP Paribas analyst Jeff Stent said in a note.
Founded in Dublin as Penneys in 1969, the seller of £8 Simpsons T-shirts and £12 denim dresses has expanded rapidly since first venturing abroad with the opening of a shop in Madrid in 2006. It now has stores in nine markets across Europe with annual sales exceeding £4 billion.
The first US outlet will be located on a 70,000-square-foot site previously occupied by Filene’s department store in Boston. Primark is negotiating to open more branches in the region through to the middle of 2016.
Bloomberg News edited by ESM
