Primark owner AB Foods reports ‘unexpected jump in sales’ as customers shop early for summer holidays
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Primark has increased its outlook for the year after reporting an unexpected jump in sales from customers shopping early for the summer as inflation eases. Associated British Foods (ABF), the group that owns the budget retailer, said people were planning for their holidays despite the cost of living crisis, with strong sales of beachwear and luggage.
The report said: “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.”
Associated British Foods said Primark sales are set to rise by 16 per cent at actual exchange rates to £4.2bn in the first half to March 4, up 10 per cent on a like-for-like basis – and ahead by 14 per cent in the UK.
AB Foods said while it continues to see “significant” cost pressures, consumer spending has “proven to be more resilient in this trading period than anticipated at the start of the financial year”.
The firm now expects group-wide half-year operating profits to be flat and for annual group-wide underlying earnings to be broadly in line with the previous year, against prior guidance for lower earnings. It comes as its food business and ingredients arm are also set to see a higher half-year result.
AB Foods cautioned over consumer spending in the second half as the cost-of-living crisis continues to put households under pressure.
It said Primark’s first-half performance was boosted as it came up against comparatives from a year earlier when Omicron weighed on trading, and that like-for-like sales growth will slow in the final six months.
AB Foods said: “Trading at Primark 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.”
It added: “Looking ahead to the second half, 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.
“Our expectation is that like-for-like sales growth in the second half will be lower than that achieved in the first half but, based on our experience to date, will be better than our previous expectation.”
It said sea freight costs have returned to more normal levels and energy costs are much lower, but that goods are still seeing steep inflation due to the strength of the US dollar against sterling and the euro, while higher wage costs are expected.
The group added that it is rolling out the launch of its Primark website – already up and running in the UK and Ireland – to Germany, Spain, France and the US soon, with other markets by the summer.
Elsewhere in the group, AB Foods said its food business has been able to offset surging inflation by keeping a tight rein on costs and price hikes and is set to see underlying earnings “well ahead” in the first half, and for operating profits at its ingredients arm to be “significantly” higher year on year.
Underlying earnings at its grocery business are expected to be slightly lower than last year, with inflation continuing to run ahead of pricing and cost-saving efforts, it added. The sugar business has been impacted by a much lower UK beet crop and higher costs as a result, which will see its earnings remain flat.
Richard Hunter, head of markets at interactive investor,said: “AB Foods has upgraded its expectations, boosted by a strong showing from Primark, the continued benefits of a diversified business and cost pressures which are showing signs of finally weakening."