Associated British Foods (ABF) Sees Lower Profits Amid Primark Challenges

Associated British Foods (LON: ABF) issued a trading update on Thursday, indicating that adjusted operating profit and adjusted EPS are expected to be below last year's figures.

“We now expect Group adjusted operating profit and adjusted EPS to be below last year,” the company revealed.

This revision reflects a challenging start to the financial year for Primark, alongside mixed performance in the company’s food businesses.

Primark's performance is a key factor in the revised outlook. While the UK market showed encouraging signs, continental Europe experienced weakness, contributing to overall sales growth falling short of expectations. The retail environment in the US also proved volatile, impacting consumer sentiment and footfall.

In the UK, Primark saw sales growth of approximately 3%, with like-for-like sales up around 1.7%. This growth was attributed to strategic investments in the customer value proposition, including product enhancements, improved price perception, and increased digital engagement. Primark gained market share in the UK during the period.

Continental Europe, however, presented a different picture, with like-for-like sales declining by around 5.7%. The company is implementing similar initiatives to those in the UK to improve performance in Europe, where consumer confidence remains weak.

Primark's total sales growth for the period was approximately 1%, with like-for-like sales down 2.7%. The store roll-out program contributed around 4% to sales growth.

Due to the difficult trading environment, markdowns were significantly increased to manage inventory levels, impacting profitability. If current sales trends persist, the adjusted operating profit margin for the full year is expected to be around 10%, similar to the first half. It should be noted that the first half of 2025 included a non-recurring profit benefit of £20m.

The food businesses experienced mixed trading in the first quarter. In the US, consumer weakness led to lower sales than anticipated in the cooking oils and bakery ingredients businesses. As a result, both the Grocery and Ingredients segments are now expected to deliver adjusted operating profit for the full year that is moderately below last year. The impact will be more significant in the first half of the year for the Grocery segment.

Revenue estimates by business segment for the 16-week period show a mixed picture. Retail saw a 1% increase, Grocery was in line with the prior year with a 1% increase, Ingredients saw a 2% decrease, Sugar a 5% decrease, and Agriculture a 4% decrease.

George Weston, Chief Executive of Associated British Foods, said: “Primark has had a challenging start to the financial year, with a mixed performance. In the UK, focused actions and investments to strengthen our customer proposition have driven improved trading and market share gains, while trading has remained weak in continental Europe.

“In a challenging consumer environment, our focus is on factors within our control, including initiatives now underway in Europe aimed at improving performance. We are also making good progress to deliver Primark's medium and longer-term growth opportunities.

“Our food businesses experienced mixed trading in the period, particularly in the US where consumer demand in certain categories has continued to weaken. While we expect the tough trading conditions to continue in the short term, we remain confident in the overall prospects for the Group.”