Associated British Foods Plc fell the most in almost seven weeks in London trading after reporting a slowdown in sales growth at its Primark discount clothing chain in the second half of the year.
Sales at Primark outlets open at least a year will show growth of about 6 percent in the year ending this week, London- based AB Foods said today, weaker than the first half’s 8 percent increase. Higher cotton and transport costs and tax increases in the U.K. and Spain will affect Primark’s margins next year, the company also said. The shares fell as much as 3.6 percent to 1,049 pence, the steepest drop since July 28.
“We’re talking about a slowing-down of really very rapid like-for-like growth,” Finance Director John Bason said today in a telephone interview. “We were probably up 4 percent in the final quarter of this year compared with about 10 percent last year. By any stretch of the imagination, this is strong.”
Primark accounts for about a quarter of sales and a third of profit at AB Foods, having almost tripled revenue in five years. Sales and profit will be “well ahead” of last year in the 53 weeks ending Sept. 18, led by store openings in Europe and “continued good growth” in the U.K., the company said.
The retailer’s margins will probably widen this year, before weakening in fiscal 2011, AB Foods said. “There’s going to be a margin decline next year, but from a higher base,” Bason said. “Margins are going to be stronger than expected this year; that gives us oxygen.”
Primark will have opened eight stores in the second half, AB Foods said, leading to a 10 percent increase in selling space compared with last year. A second store on London’s Oxford Street is due to open before Christmas 2011, while outlets will also be added in Spain, Germany, the Netherlands and Portugal.
Earnings for the year should show “very good progress,” with “a substantial increase in adjusted operating profit for the second half,” London-based AB Foods said today.
The company said it saw “sustained” strong cash flow during the year, cutting net debt to about 800 million pounds ($1.24 billion). A new 1.15 billion-pound five-year credit facility was negotiated in July.
AB Foods will target “organic” growth at its sugar unit by expanding capacity, and has an “appetite in places like grocery if the right business comes along,” Bason said.
“People know that for the right acquisition, AB Foods has the capability to be able to go ahead with that,” Bason said. “It’s all about the right deal at the right price.”
AB Foods is the second-biggest sugar producer in the world after buying Azucarera Ebro last year. The company expects profit at the sugar unit to be “substantially ahead,” driven by growth in Europe and an improved performance in China. Profit at Illovo Sugar Ltd., in which AB Foods holds a 51 percent stake, will be hurt by unfavorable currency movements.
AB Foods shares were down 30 pence, or 2.8 percent, at 1,058 pence as of 10 a.m. in London.