AB Foods Hails ‘Outstanding’ Primark as Chain’s Sales Jump

Associated British Foods Plc said an “outstanding” performance from the Primark budget-clothing chain drove business ahead of its expectations in the financial year to date, boosting the shares the most in 18 months.

Primark revenue surged 25 percent from a year earlier in the 16 weeks ended Jan. 5, the London-based company said today in a statement. A 12 percent increase in the sugar unit’s sales also exceeded group revenue growth of 10 percent.

Primark opened 14 new stores during the period, including its first two in Austria, while the chain’s operating profit margins widened as cotton prices fell. Sales growth was fueled by the retailer’s U.K. stores, with British shoppers having been more willing to spend on affordable apparel over the holiday than they were in 2011, Finance Director John Bason said in an interview. Popular items included holiday sweaters and all-in-one jumpsuits, also known as “onesies,” he said.

Primark’s sales were “stunning” and “well ahead of expectations,” Panmure Gordon analyst Graham Jones said in a note. Sales in Primark stores open at least a year rose 9 percent, Jones said, above his earlier estimate of 5 percent.

AB Foods rose as much as 4.8 percent to 1,630 pence in London trading, the steepest intraday gain since July 14. The shares traded at 1,627 pence at 9:01 a.m., the highest price since at least January 1986. They were among the five biggest gains today in the U.K. benchmark FTSE 100 Index.

‘Extremely Confident’

Bason said he was “extremely confident” that Primark’s performance this year will offset declining profits in sugar.

“Disposable incomes got squeezed in 2011, but there was not a squeeze towards the end of 2012,” the executive said. “We have got the fashions right and more and more people are recognizing that. Onesies were blowing the lights out.”

Sales at the sugar unit, the biggest contributor to profit, were boosted by “marginally” higher prices in the U.K.

Sugar earnings will fall this year because of lower output, higher beet costs and a weaker euro, the company said. Nomura analyst Guillaume Delmas estimated the unit’s profit may drop 12 percent to 451 million pounds ($722 million) in a Jan 14 report.

AB Foods forecast U.K. sugar production of 1.1 million tons this year, below 2012’s 1.3 million, when growers benefited from favorable weather and record yields. The world’s second-largest sugar maker controls Illovo Sugar Ltd., the largest maker of the commodity in Africa, and makes cane and beet sugar in China.

Heavy Rains

The Spanish sugar crop will be reduced this year as heavy rains delayed planting, the company said. Illovo’s profits will rise this year because of improved sugar cane yields.

Sugar cane production in the south of China should increase, while beet sugar production in the northeast of China will be in line with last year. Chinese sugar prices “have gone quite low and remain low,” Bason said.

The executive said he was “more confident” about increasing full-year profit than he was in November, when the company said it would see “some progress” in earnings in 2013, weighted toward the first half of the year.

AB Foods, which also makes Twinings tea and the Ovaltine malt drink, said revenue was unchanged at its grocery unit, the biggest contributor to sales.

Sales at the ingredients unit were also unchanged, and revenue at the agriculture division rose 3 percent.

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