ABF confirms outlook, bringing mooted split into sharper focus
Robyn Duffy, Consumer Markets Senior Analyst at RSM UK, comments on today’s results from Associated British Foods: “Unchanged from the trading update on 8 January, today ABF reported that group revenues for the first quarter were 0.9% lower year-on-year on a constant-currency basis. Comparable sales at Primark were down 2.7%, with like-for-like sales growth in the UK outperforming other markets at 1.7%. Europe like-for-likes were down 5.7%, with the US experiencing a volatile trading environment.
“With the business still overwhelmingly store-led, softer shopper footfall across the wider UK retail market continues to present a challenge in a subdued apparel environment. Execution risk also remains in Europe and the US where digital marketing and click-and-collect are not yet completely embedded, limiting Primark’s ability to fully replicate the UK playbook across its global footprint. Growth ambitions in the US add another layer of risk, with subdued consumer confidence, political uncertainty and rising unemployment – particularly in the Gen Z cohort – weighing on demand.
“Whilst the food businesses provide diversification, they are facing their own near-term pressures. US consumer weakness has proven more acute than expected, particularly in grocery and ingredients, prompting a downgrade to full-year profit expectations and weighing on first-half performance. The sugar business in particular is struggling with revenues below the earlier estimates in January (at -6.9%) and is exposed to commodity price volatility and high input costs.
“Primark generates more than half of ABF’s profits, which makes group performance increasingly sensitive to shifts in discretionary spending. That exposure was evident over the recent Golden Quarter, when trading across apparel was uneven and Primark appeared to land on the weaker side of the divide. With the food businesses also experiencing a softer trading backdrop, this sharpens, rather than changes, the strategic question facing the board as it reviews the group’s structure of whether Primark should continue to sit at the centre of the group or whether separating retail from food would deliver greater clarity and resilience for investors.”