LONDON (Reuters) - Associated British Foods (ABF.L), the company behind budget retailer Primark, said a stronger pound and U.S. dollar would have a bigger-than-expected hit on full-year earnings and could weigh on profits in its new financial year.
The company, which makes more than half its annual profits from Primark and also has sugar and ingredients businesses, said on Monday exchange rate moves would knock around 30 million pounds ($46 million) off operating profit for the year ending Sept. 12, up from its previous estimate of 25 million pounds.
The impact in its new financial year could be greater, if current rates persist, it added, pointing in particular to the strengthening of the pound and dollar against the euro.
However, the group maintained its guidance for a modest decline in adjusted earnings per share (EPS) for this financial year, due largely to a drop in European sugar prices.
At Primark, AB Foods tends to buy clothes from Asia in U.S. dollars before selling them increasingly in euros, as it expands in countries such as France, Germany and Spain.
Shares in the company, which has a market capitalisation of around 25 billion pounds, were down 1.9 percent at 3,080 pence by 0835 GMT, the biggest fall on the UK's benchmark FTSE 100 .FTSE index.
“There’s a little bit more caution on the FX front,” Numis analyst Charles Pick noted.
AB Foods said it was working to minimise the impact of adverse exchange rates.
“A good proportion of the impact has been successfully mitigated by our buying teams as they firm up orders for next year,” it said in its statement.
For the year ending Sept. 12, analysts are forecasting adjusted EPS of 98.3 pence, down from 104.1 pence the year before.
Primark’s progress is on track, AB Foods said, with the retailer due to open its first U.S. store in Boston on Sept. 10.
AB Foods will report its full-year results on Nov. 3.
Additional reporting by James Davey,; Editing by Kate Holton and Mark Potter