Primark has reported a dip in sales as its parent company, Associated British Foods (ABF), works to strengthen the fast-fashion retailer ahead of its planned separation from the group next year. Like-for-like sales at the retailer fell by 2.6 per cent in the year to September, hampered by weak consumer confidence and a slow start to its turnaround strategy across European operations.
ABF is moving at pace to place Primark on firm ground before its demerger in December next year, but warned shareholders on Tuesday that these efforts are being hindered by a challenging consumer market.
European sales weigh on results
The sales decline was largely driven by a 4.7 per cent fall in Continental Europe, Primark's largest market, which accounts for 47 per cent of its total revenues. The group said sales fell in the region because consumer sentiment remained weak and the retailer is at an earlier stage in its commercial recovery and in developing its brand, marketing and digital capabilities.
In the UK and Ireland, Primark's sales edged up by 0.5 per cent over the year, although like-for-like takings slipped by 0.1 per cent in the second half, pointing to a softening in consumer expenditure. The group is focused on enhancing Primark's womenswear range and strengthening its position in the UK market. In September, the retailer confirmed it would introduce home delivery for the first time.
Group profit and sugar losses
ABF's overall results were weighed down by a significant loss at its sugar division, with the FTSE 100 group recording a pre-tax profit of £1.3bn, some 10 per cent below the previous year's figure. The sugar division fell to an adjusted operating loss of £47m owing to declining sugar prices.
Chief executive George Weston said the group's food operations were impacted by US consumer weakness in certain categories and lower European sugar prices. The group attributed sluggish performance in its Twinings tea business to unseasonably warm weather across the UK and France, though it has sought to boost revenues with a new cold tea range in Australia.
Across ABF's grocery operations, revenue rose by three per cent over the year to £4.2bn, while adjusted operating profit edged down by 10 per cent to £383m. Weston said the headline profit dip masked encouraging growth across a number of brands and businesses, supported by continued investment in product innovation, marketing and targeted acquisitions. The group recently acquired bakery giant Hovis and anticipates making significant cost synergies as it integrates the business with its Allied Bakeries division.
Market reaction
Analysts at stockbroker RBC noted that ABF's update was cautious on consumer sentiment as Primark faces a tougher macro and competitive backdrop in major markets, particularly outside the UK.
ABF's majority shareholder is Wittington Investments, a trust controlled by the billionaire Weston family. Last month, Wittington acquired high street giant Boots for £6.7bn. Shares in ABF fell 2.6 per cent to 1,891.5p in early trading.
