Primark owner Associated British Foods (ABF) said on Monday its full 2022-23 year expectations have improved, with adjusted operating profit and adjusted earnings per share now expected to be broadly in line with the previous financial year.
The group, which also owns major sugar, grocery, agriculture and ingredients businesses, had previously forecast adjusted operating profit lower than the £1.4 billion (€1.6 billion).
It now expects sales to increase substantially this year, largely due to resilient consumer demand for its budget fashion offering.
“Total sales in Europe, excluding the UK, are expected to increase by 18 per cent driven by higher footfall with growth in all our markets,” it said in a trading update on Monday. Like-for-like sales, meanwhile, are expected to be 8 per cent higher than 2021.
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ABF said it had “traded well” for the first six months of its financial year with sales expected to reach £4.2 billion (€4.8 billion), 18 per cent ahead of the first half of its previous year.
Trading at ABF’s Primark retail division – which is headquartered in Ireland where it trades as Penneys – has been “good in all its markets, well ahead of expectations, and represents a material improvement in both the UK and Europe on the second half of our last financial year”, the company said.
Primark’s total sales are now forecast to be 16 per cent ahead of the same period last year when turnover reached £3.5 billion (€4 billion).
ABF said sales have been boosted by improved footfall due to the lifting of Covid-19 restrictions in Britain, Ireland and the rest of Europe last year. Primark said last month that it had a record week in the run-up to Christmas as shoppers hunted for bargains during the worst cost-of-living crisis in decades.
The group said people were planning for their holidays despite the cost of living crisis, with strong sales of luggage and beachwear.
“We believe our proposition of great quality at affordable prices and attractive store experience is proving increasingly appealing to both existing and new customers,” the group said. “Early reaction to our spring and summer ranges has been very positive.”
However, the company said it expects margins in its food business to be narrower than expected as it continues to encounter “significant cost pressures”.
Adjusted operating profits in its grocery division are expected to be slightly lower than last year, it said, “with inflation in input costs continuing to run ahead of pricing and cost mitigation activity”.
Overall, it said that input cost inflation had become “less volatile” in recent months with some commodity costs declining. In particular, the group said that sea freight costs had returned to more normal levels after the disruption of the pandemic while energy costs are “much reduced” recently.
The group’s share price, up more than 20 per cent this year, gained on Monday morning following the update.
However, it also warned about the possibility of lower consumer spending in the months ahead. While recent economic data suggest the UK may just avoid a recession in the first half of this year, some economists are doubtful that consumers will continue to spend at the same rate as interest rates rise and government energy price support ends.
“Macroeconomic headwinds for the consumer remain and may weigh on spending in the months ahead. At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates,” ABF said.
It also cautioned that a smaller beet crop in the UK will dent its second-half profits from sugar production. – Additional reporting: Bloomberg/Guardian
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