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Retail

Associated British Foods Trading Update – What The Analysts Said

Primark owner Associated British Foods has issued a third quarter trading update, in which it said trading in the 36 weeks to 28 May was 'in line with expectations', while its outlook for the year remains 'unchanged'.

The group has also announced plans to trial a much-anticipated click and collect scheme. Here's how leading industry analysts viewed its performance.

Russ Mould, AJ Bell

“The big takeaway from Associated British Foods’ latest update is the news that its retail chain Primark is trialling a click and collect service.

“Primark has long been a bit of an outlier on the high street for having no online transactional services. Its argument has always been that the economics of online deliveries and returns wouldn’t stack up at its price point and for its product range.

“Given the big costs facing web-only retail at present, this argument carries more weight than ever. Primark has also relied on lots of impulse purchases in store which might be difficult to replicate online. But click and collect, which is being trialled on children’s wares in the North-West, could be a useful halfway house for the business.

“Like all value-based consumer facing propositions, Primark faces the challenge of dealing with mounting costs while not losing its credentials on affordability with customers. Its scale is helping in terms of tackling this challenge and assuming it can sustain this, the brand could enjoy market share gains as shoppers trade down.

“Another thing which makes Associated British Foods stand out is its conglomerate structure. However, a diversified business has served it well during the pandemic and through reopening as the importance of its food, ingredients and grocery business has come to the fore. This is particularly the case at present thanks to the disruption to global food supplies caused by the war in Ukraine.”

Barclays European Food Retail Equity Research

"Primark will start a Click and Collect trial in 25 stores in NW England around November and will focus the trial on the key kidswear segment. In our view this is a significant move, not just a toe in the water because it will be adding a lot more items with up to 40% exclusive ranges for Click and Collect and because there will be a dedicated Click and Collect distribution centre. It will be also be a very different proposition for its customers.

"We would expect the trial to drive higher footfall and deliver incremental sales from existing and new customers whilst minimising substitution sales. Click and Click margins are lower but sales should be at higher average selling price (ASP) because for the first time it will be able to sell items such as baby cots which are not currently sold in stores due to space constraints. If successful, a wider rollout is possible next year. Capex costs will be in 'tens of millions' for the trial with very modest P&L costs. We are not changing our Primark forecasts for this.

"Q3 Primark LFL of -9% is below our estimate of -7%, still held back by Europe down -15%. The good news is exit LFLs and current trading is encouraging. In recent weeks UK LFLs are positive and Europe LFLs down high HSD. We expect Q4 LFL of -5% with UK flat and Europe down 10% UK trading is strong and flagship stores are coming back with the return of tourists. Europe is taking longer to shrug off the impact of Covid on footfall and consumer confidence."

Clive Black, Shore Capital

"With the group’s management stating that its performance is in-line with expectations and no change to its outlook, we see this as a good update, upon which we are not changing our FY22 financial forecasts, and we would not expect much wider market movement around estimates.

"Interestingly, the online channel has, in this present down economic cycle, proved to be especially weak in the face of shoppers' evolving behaviour in the UK in particular, leading to notable warnings, most recently from Asos in the UK. As such, stores are proving to be much more resilient than we would have expected only at the turn of the year.

"Hence, Primark's pure online offer is not presently as strategically out of favour as some previously believed and presently may suggest, noting that on a same product basis it has value credentials that remain very high indeed."

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

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