Associated British Food’s first-quarter revenue rose 0.5% to £6.7bn, ignoring the impact of exchange rate movements. Within that, Primark saw its revenue rise 1.9% to £3.4bn, and it was a mixed performance across its other business segments.
A tough comparable period and a “challenging retail environment” saw Primark lose market share and like-for-like revenue fall 6.4% in the UK. International performance was much better, more than offsetting this decline as the group opened seven new stores across the US and Europe in the period.
Revenue in the Sugar division fell 2.1%, with growth in Africa being more than offset by a decline in European sales prices.
Primark’s full-year revenue guidance has been lowered slightly from mid single-digit to low single-digit growth.
The shares were broadly flat in early trading.
Our view
Associated British Foods had a weak Christmas period. Primark struggled to keep up with its competitors in the UK, resulting in a loss of market share and a downward revision of the retail chain's full-year revenue forecast.
Given Primark's maturity in this market, UK growth is increasingly hard to come by. But overseas expansion is a big part of the game plan and is helping to offset the decline on home soil. At a time when many other large physical retailers are closing their doors, Primark expects new stores to contribute around 4-5% in annual sales growth for the foreseeable future.
Primark isn’t ignoring the value of an online presence. Click-and-collect trials have been a huge success, and this feature is set to be rolled out to all stores across England, Wales, and Scotland by the end of 2025. That’s a big positive for the customer experience and should help support footfall and overall sales in-store.
Last year’s increased sales, combined with a fall in material and freight costs, were a huge tailwind for Primark's profitability, which improved by more than 50%. However, retail is a fickle sector, and 2025 has gotten off to a shaky start. So Primark needs to retain its laser-like focus on its ranges and make sure it keeps offering what its conscious customers want.
But Primark's not the only show in town. ABF is home to an eclectic mix of food and commodity businesses. This diversification helps to spread risk and ensures that the company isn't overly reliant on any one particular product or division. But bear in mind, sugar and other commodity prices are cyclical and will fluctuate over time.
That’s exactly what we’re seeing play out, and profitability in the Sugar division is set to come back down to earth this year. And while energy and freight costs may have eased, geopolitical tensions remain fragile, and any escalation could have knock-on effects for global supply chains.
Including lease liabilities, the group's net debt pile was £2.2bn at the last count. Compared to its cash profits (EBITDA) of £2.9bn, debt remains well below the group's target. That means there's room to feed excess cash back to shareholders in the form of a special dividend and a share buyback programme. As always though, shareholder returns are never guaranteed.
ABF offers a dynamic business model. Primark has growth opportunities abroad, but in the near term, this could be overshadowed by weakness on home soil. The current valuation is well below the long-term average, which could mark an attractive entry point for potential long-term investors willing to accept ups and downs along the way.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Associated British Foods’ management of ESG risk is strong.
ABF has a comprehensive environmental policy and global supplier code of conduct. Although priorities appear to be set at a group level, each business division has its own approach, resulting in certain businesses reporting more comprehensive sustainability efforts than others.
Associated British Foods key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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