AB Foods Third-Quarter Sales Rise on Primark Clothing Chain

Associated British Foods Plc said third-quarter revenue rose 8 percent as sales at its Primark clothing outlets offset a decline at the sugar business.

Primark revenue rose 20 percent in the 16 weeks to June 22, the London-based maker of Twinings tea said today in a statement. Sales at the sugar division fell 15 percent.

The stock rose as much as 3.9 percent, the steepest intraday gain in more than two months, after the company said it’s on track for “good progress” in adjusted earnings per share for the full year. The company is stepping up European expansion at Primark, which sells denim shorts for 7 euros ($9.20), to tap demand for inexpensive clothing.

Primark, which does not have an online store, began in June to sell some of its products through Asos Plc, the U.K.’s largest online-only fashion retailer, and plans to open its first shop in France.

The Asos venture does not herald Primark’s move into online retailing and is “a trial for a limited period” until the fall, AB Foods Finance Director John Bason said in an interview.

It’s an information gathering exercise, Bason said. “We’re expanding on the high street and that remains our focus.”

French Primark

Apart from opening the first French store in Marseille later this year, Primark has no plans to expand to any other countries this year.

“Primark is capable of growing by 15 to 20 percent in the medium term, driven by like for like sales and new space, particularly in Europe,” said Martin Deboo, an analyst at Investec Securities in London. “Still, while a lot of the new money that has piled into ABF over the last year was on the back of Primark, sugar is still highly material to growth, accounting for almost 40 percent of profits.”

Primark nine-month sales rose 22 percent, driven by an increase in selling space in the period before Christmas and “good” same-store sales. Same store sales in the third quarter were probably about 3 percent, “comfortably ahead of key peers,” according to Graham Jones, a London-based Panmure Gordon analyst.

The company was among retailers whose products were made in the Bangladeshi factory building that collapsed in April, killing more than 1,100 people. Primark has made plans for long-term compensation for the victims, it said.

AB Foods traded 7.3 percent higher at 1,948 pence at 9:47 a.m. The stock has gained 54 percent in the past 12 months.

Third-quarter sales at AB Foods’s ingredients unit increased 5 percent, and revenue at the agriculture division rose 18 percent. Sugar revenue was up 1 percent in the first nine months and sugar sales and profit remain on track for the full year, the company said. Total revenue rose 9 percent in the first nine months.

(Updates with finance director comment in fifth paragraph.)
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