Associated British Foods Plc, the U.K. sugar producer that owns Primark budget clothing stores, said first-half profit will be similar to last year as the growth of the retail business offsets falling sugar prices.
Primark sales rose 14 percent, or 4 percent at stores open at least a year, the London-based company said in a statement issued five days before the end of its financial period.
The popularity of Primark’s budget fashions is proving invaluable for AB Foods, at a time when its sugar unit is being weighed down by price pressure caused by accelerating imports from outside the European Union. The chain is adding stores across Europe, while warehouse and distribution efficiencies boosted profit margins in the first half, the company said.
“Primark has continued to be strong, while commentary around the remaining businesses remained cautious to negative,” Andrew Wood, an analyst at Sanford C. Bernstein in Singapore, said today in a note to clients.
AB Foods shares fell 1.5 percent to 2,947 pence at 8:56 a.m. in London. Before today, the stock had risen 22 percent this year, extending a 56 percent gain in 2013.
January and February “were good like-for-like months” for Primark and profit may be “a bit ahead” of analyst estimates, Chief Financial Officer John Bason said in an interview.
The chain’s selling space increased by about 8 percent in the first half as it opened stores in the U.K., France, Spain, the Netherlands, Germany, Austria and Portugal.
Lower sugar profit means full-year earnings per share will fail to grow, AB Foods said, repeating a Nov. 5 forecast.
“A reduction in EU sugar prices, ahead of regime reform in 2017, has been signaled for some time, although the speed with which the market is adjusting has been faster than anticipated,” the company said. “The world sugar price has also fallen to what we believe to be an unsustainably low level, putting further pressure on industry revenues and margins.”
The strength of sterling against AB Foods’ main trading currencies poses additional challenges, the company said.
“We are looking at a big headwind of currency and we are holding our full-year guidance,” Bason said.