20th Jun 2022 11:59
(Alliance News) - Associated British Foods PLC shares faced late morning selling pressure on Monday, though analysts were impressed by the Primark owner's ability to fend off inflationary pressures.
Commentators also hailed the launch of a click and collect service for the retail unit, potentially a "halfway house" for Primark, whose lack of an online offering has stuck out like a sore thumb among UK high street peers.
AB Foods shares were flat at 1,608.87 pence each on Monday morning in London. The stock was roughly 2% higher in early dealings, however. The wider FTSE 100 was 0.9% higher.
AB Foods said group revenue increased 29% yearly to GBP11.93 billion in the 36 weeks to May 28. In its third quarter alone, revenue rose 32% to GBP4.05 billion.
"Trading in the period met expectations and the group's still expecting 'significant progress' in underlying operating profit at the full year," Hargreaves Lansdown analyst Laura Hoy noted.
AB Foods said sales in its Food units alone rose 10% in the third quarter. This was down to "actions to recover input cost inflation and volume increases in Ingredients," the firm said.
HL's Hoy said references to inflationary pressures were "noticeably absent" from the Primark owner's update. While inflation presents a worry to retailers, Primark may be among the sector's better performers amid the cost of living crisis, as more premium retailers struggle to maintain market share as consumers go more thrifty.
Hoy explained: "Management said it would be forced to raise prices on its autumn and winter collections back in April. But bikinis and flip flops are still at the top of the shopping list for holiday-obsessed consumers right now. So the impact of these price hikes on volumes is yet to be determined. The group's in a good position as we head into tougher economic conditions, with its lower-priced items more appealing to cash-strapped consumers, but a slowdown in consumer spending is sure to hit the entirety of the sector."
Aside from inflation, analyst commentary was also centred on the launch of a click and collect service at Primark planned "towards the end of this calendar year".
A trial will take place in up to 25 stores in the north west, "which will provide a representative sample of store sizes and formats in our UK estate", AB Foods said.
AJ Bell analyst Russ Mould commented: "Primark has long been a bit of an outlier on the high street for having no online transactional services. Its argument has always been that the economics of online deliveries and returns wouldn't stack up at its price point and for its product range.
"Given the big costs facing web-only retail at present, this argument carries more weight than ever. Primark has also relied on lots of impulse purchases in store which might be difficult to replicate online."
Click and collect services could be a "halfway house", however, Mould added.
"It means people can shop at their convenience at home but will still come through the doors of a Primark to collect their purchase and potentially make some incremental buys along the way," Mould added.
By Eric Cunha; [email protected]
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