Associated British Foods Plc shares fell as sales at the company’s budget fashion chain Primark dropped over the summer.
Primark’s same-store sales declined about 2 percent in the fourth quarter that ends this week, Chief Financial Officer John Bason said by phone. The stock slid 6.4 percent at 9:14 a.m. in London, the worst performer on Britain’s benchmark FTSE 100 index. That halted a rally that saw the shares rise more than 30 percent since Britain voted to leave the European Union.
Primark’s fourth-quarter sales and operating margins were a “bit lower” than expected and the very warm weather at the start of autumn will probably have a further negative impact on sales, according to RBC Europe analyst Richard Chamberlain.
U.K. fashion sales have declined for seven straight months due to unseasonable weather, hurting results at Primark along with rivals Marks & Spencer Group Plc and Next Plc. Primark’s profit margins should get squeezed next fiscal year as hedges taken against the fall in sterling expire. The chain, which just entered Italy and will open three new stores in the U.S. over the next twelve months, is also vulnerable as e-commerce continues to grab a greater share of the clothing market.
As Primark slows, AB Foods is increasingly dependent on its sugar business, which should post the biggest improvement in earnings growth next year of any of its businesses as European and world sugar prices improve, Bason said. ABF is narrowing its focus there, agreeing to sell its Chinese sugar-cane business to a consortium led by Nanning Sugar Industry Co. following the buyout of the minority investors in its African business Illovo.
Due to better than expected group operating performance and sterling’s weakness boosting the value of international earnings, AB Foods now expects full-year earnings per share to be marginally above last year’s level of 101.5 pence. Prior to the U.K.’s June vote to leave the European Union, the company anticipated a drop in earnings this year.
London-based AB Foods is scheduled to release its full-year results November 8.