LONDON (Reuters) - Associated British Foods (ABF.L) raised its forecast for full- year results on Monday following a strong performance by bargain fashion retailer Primark.
A sharp fall in the value of sterling since last year’s Brexit vote, combined with below-inflation pay increases, has eaten into household budgets in Britain, forcing shoppers to tighten their belts and become more price-conscious.
As a result Primark has continued to perform well, with UK like-for-like sales up over 4 percent during the 2016-17 year and its share of the total UK clothing market up “significantly”, the company said in a trading statement.
“What really comes through in this market is value,” Finance Director John Bason told Reuters.
AB Foods said Primark’s 2016-17 overall sales would be 13 percent ahead of last year at constant currency, with like-for-like sales up 1 percent.
Primark’s full-year operating profit margin was forecast to be better than the first half’s 10 percent, ahead of previous guidance.
The fashion retailer added 1.5 million square feet of selling space in 2016-17 and plans 1.2 million in 2017-18.
Primark accounts for about half of AB Foods’ profit.
The group, which also has major sugar, grocery, agriculture and ingredients businesses, forecast “good” growth in adjusted operating profit and adjusted earnings per share (EPS) for its year to Sept. 16. It made EPS of 106.2 pence in 2015-16.
Prior to Monday’s update shares in AB Foods, majority owned by the family of Chief Executive George Weston, had increased 19 percent this year and hit a 52-week high earlier this month.
However, they were down 2.8 percent at 3,173 pence at 1048 GMT, reflecting some concern over competition and cost pressures in the UK bread market.
The group has a stock market value of 25.4 billion pounds - some 10 billion pounds more than Tesco (TSCO.L), Britain’s biggest retailer.
AB Foods also said it expected to end the year with net cash of 650 million pounds ($857 million) versus net debt of 315 million pounds in 2015-16.
Some of this cash will be absorbed by the purchase of Acetum, the Italian producer of Balsamic Vinegar of Modena, whose brands include Mazzetti, Acetum and Fini, that was also announced on Monday.
AB Foods regards the acquisition as an opportunity to broaden its international presence in speciality foods, developing it alongside its Patak’s, Blue Dragon, Jordans and Dorset Cereals businesses.
The group declined to disclose the acquisition cost. However, analysts said it was about 300 million euros (272.71 million pounds).
“After the challenges of 2016, ABF is ending this year with good momentum,” said analysts at Barclays, who have an “equal weight” stance on the stock.
Editing by Paul Sandle, Greg Mahlich