Primark Sales Rise Amidst Owner's Sugar Business Slump
Associated British Foods reports a 3% increase in Primark sales, but a troubled sugar division faces potential losses of up to £60 million.
Primark has reported a 3 percent increase in sales, reaching £2.9 billion in the 16 weeks leading up to June 20. This growth occurred as the budget fashion retailer prepared for a forthcoming spin-off, while its parent company, Associated British Foods (ABF), grappled with significant challenges in its sugar business.
In the UK, Primark's sales saw a 1 percent rise, though like-for-like sales experienced a marginal decrease of 0.1 percent. The company attributed a period of weaker trading in April and May to the fallout from the Middle East conflict, which dampened consumer confidence, and unseasonal weather. However, improved weather conditions in June contributed to stronger sales figures for the remainder of the period.
ABF warned that its sugar division is now anticipating an annual loss of up to £60 million, a significant increase from the previously projected £25 million loss. The company cited the prolonged and severe Middle East conflict as a factor in elevated gas prices, which have not been offset by corresponding increases in European sugar prices.
ABF CEO George Weston acknowledged the challenging retail environment but highlighted Primark's efforts to strengthen its customer proposition through new product launches, competitive pricing, and increased marketing, particularly in digital channels. Stores in the United States, including the new Manhattan location, are performing well.
The conglomerate is on track with its plan to separate the fashion chain from its food businesses by the end of 2027. Primark, which operates 486 stores across 19 markets and accounts for over half of ABF's profits, is expected to achieve a higher valuation as a standalone entity. A potential listing in London could also provide a boost to the UK stock market, with Primark poised to enter the FTSE-100 index due to its substantial size.
In addition to Primark, ABF's portfolio includes grocery brands such as Ovaltine, Ryvita, and Twinings. Investment director at AJ Bell, Russ Mould, commented that ABF's diversified structure has helped mitigate the impact of its underperforming agriculture and sugar operations. However, he noted that with the planned separation of Primark, future setbacks in any single division could have a more pronounced effect on the company's overall performance. Mould suggested that ABF might consider divesting its sugar business, given its ongoing restructuring plans.