The owner of fashion retailers Penneys and Primark has forecasted “significant growth” in full-year profit after reporting a 39% jump in the first half, driven by an improved performance across its fashion retail stores.
Associated British Foods (AB Foods), whose shares soared 10% in morning trading, had previously forecast “meaningful progress” in full-year profit. The shares had already gained more than 21% before Tuesday’s surge.
The company, which also owns major sugar, grocery, agriculture and ingredients businesses, said adjusted operating profit, its key profit measure, was £951m (€1.1bn) in the six months to March 2nd, on a 2% climb in revenue to £9.73bn (€11.3bn).
“The group has delivered a strong first-half performance and is on track to deliver significant growth in both profitability and cash generation ahead of expectations at the start of this financial year,” it said.
Primark’s first-half revenue rose 7.5% to £4.5bn (€5.2bn), with like-for-like sales up 2.1%. It logged an operating profit margin of 11.3%, up from 8.3%, partly driven by improvements in the costs of the products it buys.
Rival H&M said last month it aims to reach an operating profit margin of 10% this year.
The group said Primark would roll out its click & collect service more broadly in the UK after a successful trial.
Unlike most of its rivals, Primark does not offer home delivery.
“We expect Primark to continue to perform well in the second half driven by our store expansion programme and the modest levels of like-for-like growth, as we focus on driving volumes,” the group said, cautioning that the consumer environment “remains soft.
The company said volumes had started to recover in its food unit after a prolonged period of inflation which forced some cash-strapped shoppers to rein in their spending.
It forecast a “moderate improvement” in Primark’s operating profit margin in the second half compared to the first.
The group also expects its grocery business, which includes products such as Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, to continue to perform well in the second half.
It forecast a “substantial improvement” in profitability in its sugar business.
“We are now benefiting from the restoration of some normality in our markets and in our supply chains,” CEO George Weston said.
“Group profit margins are recovering accordingly to more normal levels.”
The group said it was monitoring the situation in the Red Sea but did not expect any significant disruption to its supply chain.
The British conglomerate lifted its interim dividend by 46% to reflect the growth in earnings amid the “restoration of some normality in our markets and in our supply chains,” according to a statement Tuesday.
Reuters.
