24th Jan 2023 09:26
(Alliance News) - Primark enjoyed a "record" Christmas, in keeping with positive updates from retail sector peers, though its parent Associated British Foods PLC still has work to get margins back on track.
The diversified company said revenue in its Retail division was 18% higher at GBP3.15 billion in the 16 weeks to January 7. The unit's sales in the week leading up to Christmas Day "reached a new record", AB Foods said.
Primark traded well in all markets and beat expectations during a "very strong Christmas period", the company said.
AB Foods noted its affordable clothing offering was attractive, at a time when the UK consumer is keeping a lid on spending due to a cost of living crisis.
Third Bridge analyst Alex Smith commented: "Our experts see Primark regaining a lot of the ground they lost to online retailers during the pandemic over the year ahead. At a time of tightened purse strings, Primark can offer customers cheap outfits that offer instant gratification."
The adjusted operating profit margin at Primark was better than expected amid improved sales. Its margin was still weaker on-year, however, due to inflation.
"Primark can certainly do more to improve margins by shrinking their ranges, reducing unnecessary complexity, and cutting back on inventory levels," Third Bridge's Smith added.
"Analysts will be watching to see how quickly Primark attempts to push towards more profitable premium ranges and more fashion-orientated garments."
Elsewhere in ABF's vast portfolio, Grocery revenue climbed 14% and Agriculture revenue by 19%. In Sugar and Ingredients, it rose 31% and 36%, respectively. Across the whole of its Food sub-group, revenue was up 23% to GBP3.55 billion.
Brands in its Food division include Allinson's flour, the Blue Dragon range of Asian food products and Kingsmill bread.
AB Foods said price hikes meant it recovered "significant inflation in input costs".
Hargreaves Lansdown analyst Aarin Chiekrie commented: "One of ABF's main strengths is its diversified business portfolio, which includes many well-known food brands such as Kingsmill, Ryvita and Twinings. This diversification helps to mitigate risk and ensures that the company isn't overly reliant on any one particular product. This bore fruit as total food sales also spiked towards the back end of last year.
"In the short-term, jittery customers and inflationary pressures are likely to keep a lid on profits. But longer term, with inflation easing and commodity costs normalising, we think there's plenty of room for ABF to restore margins."
AB Foods shares were 1.1% lower at 1,849.00 pence each in London on Tuesday morning.
By Eric Cunha, Alliance News news editor
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