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Retail

Associated British Foods Warns Of Lower Profit Next Year

By Steve Wynne-Jones
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Associated British Foods Warns Of Lower Profit Next Year

Associated British Foods has warned of lower profit next year, as its Primark fashion business struggles with rising costs and inflation hammers the disposable incomes of British consumers.

ABF said soaring energy bills and its decision to limit further price hikes would hurt fashion chain Primark and its margins next year.

British consumers have been tightening their purse strings with inflation surpassing 10% in July. The rising costs of everything from food to fuel show no sign of abating.

ABF said it would consider in November whether or not it had surplus cash to return to shareholders this year.

The company retained its outlook for the current year ending September 17, with its food business seeing stronger revenue due to higher demand and prices of ingredients.

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Food Businesses 'In Line With Expectations'

In the statement, which precedes the group's full-year announcement on 8 November, it said that adjusted operating profit outlook for its Grocery, Sugar and Agriculture businesses were 'in line with expectations', while its ABF Ingredients arm is now expected to delivery higher than expected profits.

Associated British Foods added that it expects total sales for the year at its Primark business to come in at £7.7 billion (€8.85 billion), 40% ahead of the previous year's sales on a like-for-like basis.

Primark Like-For-Like Sales

In the UK, like-for-like sales at Primark improved in the fourth quarter of the year, to reach close to pre-COVID-19 levels, the group said, while continental Europe like-for-like sales were weaker than expected.

'Group revenue for the year will be well ahead of last year,' it said. 'In our food businesses, higher revenues reflect price actions and some volume increases, especially in Ingredients. In Primark, the much higher revenues reflect the ending of COVID-related restrictions and the resumption of more normal customer behaviour.'

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Analyst Viewpoint

Commenting on the group's performance, Warren Ackerman of Barclays said, "With the sterling plunging to its weakest level vs the dollar since 1985, combined with record energy costs, Primark's margins are coming under pressure. In H2 this year, the new expectation is for a margin of 8% but the main disappointment is that 2023 margins will be lower than H2-22 (ie <8%). This compares to our previous forecast of 10%.

"Despite Primark taking HSD pricing, it can't justify taking more pricing simply to hit a percentage margin when there is massive near-term volatility on all key cost lines."

News by Reuters, edited by by ESM – your source for the latest retail news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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