Primark represents an interesting retail brand for the UK investors. Associated British Foods (LON: ABF), its parent, says it is hoping to see a modest improvement in sales as it opens more stores. This is in direct contrast to much of the UK retail sector, which has been struggling against Brexit and digital headwinds. AB Foods has said Primark’s like for like full year sales are anticipated to fall roughly 2%, which sounds like many of its competitors, but there could be more to this.
AB reports increasing sales growth on a like for like basis including better trading going into the autumn. This is unusual for a UK high street retail brand. Primark has, however, established itself as a value for money player. If available clothing spend for UK shoppers is reduced by inflation, then this is a brand that could be well positioned.
Primark has been the main contributor growth at AB Foods. Much of its growth has been achieved through expansion, via new store openings. There is no getting away from the fact that the UK fashion market is looking weak. And AB Foods has admitted this itself.
Primark growth driven by overseas sales, new stores
Outside the UK Primark has also been making inroads into the European market. It is reporting sales growth in most key European retail markets outside Germany and is also expanding in the US and rapidly expanding the amount of additional selling space. Significantly, it lacks a material online operation. Its reliance is on high street footfall, which is in clear decline.
AB Foods’ share price has slumped on the open this morning, and are now trading well below last week’s levels. Primark is not entirely to blame for this – AB Foods has other interests, including in the sugar market, which are contributing to the decline as well. It is well off its 52 week high of 2659 with shares now trading in the region of 2311. There had been some substantial buying of the stock going into this set of results and it looks like some investors may be disappointed.
The results overall do not seem to have reversed this year’s slide in the AB Foods share price. But Primark has been reporting consistent revenue growth for a number of years now, has carved out an impressive slice of the UK fashion retail market for itself, and looks to be diversifying well outside the UK and Irish markets.
At the end of the day, Primark is still a fashion chain and represents discretionary spend for UK consumers. If shoppers react to the current uncertain economic backdrop by cutting back on spending, Primark is likely to suffer, and with it AB Foods.
The Armchair Trader says:
Don’t take your eye off that sugar division. AB Foods is still a conglomerate, but many shareholders don’t like conglomerates that feature a loss making element spoiling the party for everybody else. They may be calls for a break up of AB Foods in the future.
