Primark's U.S. Growth Offsets Weakened U.K. Performance for AB Foods -- Update

--AB Foods said fashion-chain Primark has increased U.S. sales, offsetting weakness in the U.K.

--AB Foods expects Primark to see good profit growth for the full year and maintained its overall guidance

By Adriano Marchese

Associated British Foods PLC (ABF.LN) said Thursday that its low-cost fashion chain Primark continues to deliver encouraging like-for-like and total sales growth in the U.S., helping to offset a weaker U.K. performance.

Overall Primark like-for-like sales declined in the third quarter, the company said, held back by unseasonable weather in May in the U.K.

On a constant currency and actual exchange rate basis, sales were 4% ahead in the 40 weeks to June 22. This was driven by an increase in selling space, with an additional 0.5 million square feet of space in the third quarter with nine new stores.

As more middle-class consumers in the U.S. turn to discount chains for their shopping, Primark's low prices should attract more interest there, according to Russ Mould, an analyst at investment platform AJ Bell.

"This is a major positive given how British retailers have notoriously struggled to crack the American market. Tesco, Dixons and HMV are good examples of retailers jumping over the pond only to subsequently do a U-turn," Mr. Mould said.

The company said Primark's operating margin in its first half to March 2 was 11.7%, well ahead of the of 9.8% in the same period last year. AB Foods said the main driver of the increase was a weaker U.S. dollar on contracted purchases, although better buying and tight stock management contributed as well.

Primark contributed to growth in AB Foods' revenue, which in the first 40 weeks of fiscal 2019 was 3% ahead of the same period last year at constant currency.

At actual exchange rates, AB Foods said revenue grew 2% in the period to June 22, compared with last year's equivalent period.

In the third quarter, the grocery business generated revenue that was 1% ahead of last year.

Sugar revenue was in line with the prior year, an improvement on the decline in sales in the first half of the year, AB Foods said. It said it expects production for the 2019-2020 campaign to at least equal what it produced last year, at 1.15 million metric tons.

The company's ingredients business generated revenue that was 5% ahead of last year.

AB Foods said that for the full year, it expects good profit growth in Primark and underlying progress in its grocery business. The full-year outlook for the group remains unchanged, with adjusted earnings per share expected to be in line with last year.

Write to Adriano Marchese at [e-mail]

(END) Dow Jones Newswires

July 04, 2019 07:31 ET (11:31 GMT)

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