9th Dec 2022 15:59
(Alliance News) - Associated British Foods PLC, the owner of discount fashion store chain Primark, reiterated its annual outlook on Friday despite recently reporting significant input cost inflation.
AJ Bell's Russ Mould said that, given the current consumer turmoil amid the cost-of-living crisis, for a retailer to stick to its guidance was "an achievement in itself."
AB Foods said on Friday still expects significant sales growth, but that adjusted operating profit and adjusted earnings per share were expected to be lower than the previous financial year.
Chair Michael McLintock said he also expects "further significant" input cost inflation in a trading update ahead of the company's annual general meeting, but noted the volatility of input costs has "diminished".
AJ Bell's Mould said that "the simple fact that input costs have become less volatile gives investors more visibility and also makes it lot easier for the business to plan for the future."
Shares in AB Foods were down 0.8% at 1,641.50 pence on Friday afternoon in London. In the year-to-date, the stock was down nearly 20%.
Victoria Scholar of interactive investor explained that the stock has been enjoying a "pick-up" since mid-October thanks to a turn in market mood and increased risk appetite. However, Scholar added that shares remain "weight down" by the pressures from energy bills and other costs, geopolitical uncertainty and a softening consumer outlook.
Nonetheless, analysts pointed to a strong showing from AB Food's Primark as a positive for the firm moving forward.
Chair Michael McLintock said that trading in the discount fashion chain has been encouraging, with the firm on track to open 27 new stores in the year, with six of these already open.
Russ Mould argued that this continued roll-out of stores showed AB Foods confidence that the budget chain's offering will "resonate" with shoppers in a "difficult economic environment."
ii's Victoria Scholar, however, was more cautious: "Primark's biggest selling point is its ultra-low price point, so passing on additional costs to consumers through higher prices is difficult for the retailer."
In its most recent annual results release published in November, AB Foods said revenue for the financial year that ended September 17 climbed 22% to GBP17.00 billion from GBP13.88 billion a year prior, as pretax profit jumped 48% to GBP1.08 billion from GBP725 million.
Operating costs, however, rose 21% to GBP15.73 billion from GBP13.00 billion. The firm also noted that cost inflation had eaten away GBP1 billion from profit so far at that time.
AJ Bell's Mould suggested that Primark's tentative move to the online world may aid AB Foods in boosting profitability: "There remains resistance to the idea of going fully online and offering a delivery service – Primark relies on people making impulse purchases once they are through the doors – so click and collect makes sense as an initial step to having a meaningful online presence."
Shore Capital reiterated its 'buy' recommendation on the firm as a result of this "more upbeat tone" on recent Primark trading as well as the "considerable" value in the AB Foods business portfolio over the medium-term.
By Heather Rydings, Alliance News senior economics reporter
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