AB Foods’ Primark fashion division boosts margin as sales climb

-A +A

(Sept 8): Associated British Foods Plc, the U.K. sugar and ingredient company, said sales and operating margin at its Primark budget fashion chain climbed, increasing the group’s full-year profits even as sugar sales slump.

Sales at Primark stores open for at least a year rose about 4.5 percent in the 12 months through Sept. 13, the London-based company that also makes Twinings Tea said in a statement ahead of detailed full-year results.

AB Foods shares have climbed 19 percent this year, buoyed by Primark’s surging sales growth in Europe and the prospects for the clothing chain’s first stores in the U.S. next year. That has offset a slump in sugar earnings and the effects of a stronger pound. The retail chain’s contribution to annual operating income will probably increase to 60 percent by the end of the next financial year from more than 40 percent now, according to J&E Davy Holdings Ltd. analyst Jack Gorman.

Primark’s “operating profit margin of 13.1 percent in the first half was higher than last year, reflecting the benefit of warehouse and distribution efficiencies and lower freight rates,” the company said in the statement. “These benefits continued in the second half and, with the strong trading over the summer resulting in a low level of markdowns, we expect the margin for the full year to be slightly higher.”

With world sugar prices remaining “unsustainably low,” revenue and adjusted earnings will be “substantially lower” than last year at that unit, the company said.

The company reiterated a July 10 forecast that full year earnings would be ahead of last year, after previously saying the figure would be at similar levels to that of the 2013 financial year.