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Primark boosts profits at owner Associated British Foods Associated British Foods denies Primark fears despite shares slump
(about 5 hours later)
A strong surge in sales at budget fashion store Primark is expected to have buoyed profits at owner Associated British Foods (ABF). Primark owner Associated British Foods today denied City fears its High Street budget fashion chain may have peaked, despite shares in the company tumbling more than 4 per cent.
A forecast 17 per cent increase in sales at Primark has offset a weaker performance in the group’s sugar arm, ABF said in a pre-close statement today. The firm announced it expected like-for-like sales at the retailer to rise 4.5 per cent for the year to 13 September, as finance boss John Bason said: “We are not seeing a slowdown. Short-term distortions happen. This is a great year for us.”
Sales at shops open longer than a year rose 4.5 per cent in the year to 13 September. Strong sellers over the summer included loose patterned trousers and jumpsuits, he said, adding that early sales of autumn/winter ranges were “encouraging”.
Falling sugar prices in Europe and lower sales in China were blamed for a performance at AB Sugar which will lead to “substantially lower” revenues and profits. Yet despite the strong summer, ABF shares today fell to the bottom of the FTSE 100, sliding 126p to 2783p, amid a slight slowdown in Primark’s expansion plans in terms of floor space compared with last year and evidence that like-for-like growth in the fourth quarter was closer to 3 per cent.
However, its grocery division which includes bread brand Kingsmill recorded a “strong operating profit performance”. Shares in the company have risen by roughly 60 per cent over the past  12 months, and Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “Sales at Primark look to have fallen short of high investor expectations.”
At Primark, an increase in selling space and “highly successful” autumn/winter and spring/summer ranges contributed to the sales surge, as well as a clamour for its Christmas jumpers during the festive season. Primark’s overall full-year sales are set to rise 17 per cent at constant currency, the company said, and 16 per cent at actual exchange rates.
The chain, which has 278 shops and opened 28 stores last year, plans to open its first US store in Boston late next year. Bason said the chain’s margins had improved as it controlled markdowns on its clothes, and added that its expansion overseas will bolster growth with a “strong pipeline of new stores in Europe”.
The company said: “The world sugar price continues to be unsustainably low at an average of 17 cents per pound which is well below the global average cost of production.”  The 278-strong chain will open just under one million square feet of new space in the coming year, having seen a net increase of 1.2 million square feet this year.
Profit in its agriculture division is expected to be ahead of last year with cash margins in UK feed maintained and growth delivered by higher margin businesses, the group said. ABF reiterated its plans for Primark in the United States, where it is set to open 10 stores on the East coast by late 2016.
Bason claimed Primark will be able to compete with America’s fashion and discount giants, saying: “What Primark will bring its excellent fashion and store environments and amazing prices. We have a distinctive offer.”
Overall, ABF said its full-year operating profit would meet expectations, with its grocery and ingredients division delivering solid growth led by strong Twinings tea sales in the US and the UK.
But its sugar business continued to struggle in the face of weak prices and Bason said it is “dealing with the painful adjustment of EU sugar prices”.