Surging Primark sales lift AB Foods
LONDON (Reuters) - Surging sales at discount clothing chain Primark led owner Associated British Foods to nudge up its full-year earnings forecast and boosted its shares as much as 6 percent to a 14-month high Monday.
AB Foods Finance Director John Bason said sales at Primark stores open at least a year rose 9 percent over the past six months, in contrast to declines reported recently by mid-market rivals such as Marks Spencer and Next.
The recession, as well as better weather compared with last year's summer washout, helped to fuel demand, he said. But Bason claimed there was also an underlying shift towards buying cheaper clothes that would continue beyond the downturn.
"There's a real change in people's shopping habits, and certainly among ... 20 to 30 year old females, it's a change for good," he told Reuters in a telephone interview, reporting particularly strong sales of footwear and summer dresses.
Primark's underlying sales growth, which AB Foods expects to be 7 percent over the year to September 12, also outstripped international rivals, helped by the strength of its UK market.
Sweden's Hennes & Mauritz reported a 3 percent drop in underlying sales in July on the same month last year, following a 5 percent decline in June. Europe's biggest fashion retailer Inditex posts first-half results on September 16.
"Tremendous," Shore capital analyst Clive Black said of Primark's sales growth, putting his "hold" rating on AB Foods' shares under review for a possible upgrade.
Shares in AB Foods, which also markets Silver Spoon sugar, Twining tea and Ovaltine drinks, climbed as much as 5.8 percent to a 14-month high of 859.5 pence in early trade.
At 8:40 a.m. the stock, which has outperformed the DJ Stoxx European food and retail stocks indices by 11 and 3 percent respectively this year, was up 3.6 percent at 841 pence, valuing the London-listed firm at 6.5 billion pounds.
AB Foods, 55-percent-owned by the family of Chief Executive George Weston, said it now expected "some progress" in adjusted earnings for the year ending September 12, compared with its previous forecast for a flat outcome.
Growth was also driven by a big rise in profits at the group's sugar and agriculture business as strong performances in Europe and African sugar business Illovo more than offset losses in China.
Revenues and operating profit rose at its groceries division as well in the second half of its fiscal year, AB Foods said in a trading update ahead of full-year results on November 3.
Credit Suisse analysts raised their 2008-9 earnings per share forecast by 2 percent to 56 pence, but cut their 2009-10 projection by a similar amount to 60.8 pence to adjust for a higher tax rate.
Primark accounts for nearly a third of group profit and has branched out from Britain to open stores in Ireland, Spain, Portugal, Germany and the Netherlands.
It plans at least 10 openings in its new financial year, including its first foray into Belgium.
AB Foods said gross profit margins at the 191-store chain fell because of a rise in import costs following a fall in the value of sterling against the U.S. dollar.
However, Bason said the decline was less than 1 percent and that the worst of the pressure on margins from the recent weakness of the pound was over.
(Editing by Kate Holton and Jon Loades-Carter)
- Tweet this
- Share this
- Digg this