Primark lifts ABF yet again and offers a “top business model”

ANALYSIS_ As advanced by its parent group – AB Foods (ABF) – and excluding the effect of currency moves, Primark registered annual sales growth of 17 percent with underlying sales ahead 4.5 percent, with analysts stressing that Primark would contribute operating profits in the region of 600 million pounds

to ABF profits.

Primark’s overall full-year sales are set to rise 17 percent at constant currency, the company said, and 16 percent at actual exchange rates.

Despite the solid growth figure, the annual sales improvement came after an 8 percent surge in the third quarter, driving some analysts’ concerns on a like-for-like growth slowdown (to 3 percent in the final quarter).

Fighting these concerns, financial chief officer at Primark John Bason said that “We are not seeing a slowdown. Short-term distortions happen. This is a great year for us.”

Primark's strength is not sufficient to lift ABF stock's price

It is noteworthy that in spite of Primark´s sustained success, the impact of falling sugar prices weighed on the group’s shares. On this regard, ABF said the price of sugar had slumped as producers battled to position themselves in new markets ahead of the removal of quotas in 2017, leaving the stock now at a "unsustainably low" price of 17 cents per pound.

Bason also pointed out that the current price ups and downs would lead them to look at how to restructure its operations to make them more cost efficient.

The sugar division made profits of 435 million pounds last year but analysts at Jefferies estimate that more than halved to about 200 million pounds in the year just ended with a fresh fall predicted in the year ahead, as published Reuters.

Right after posting these figures, ABF shares fell to the bottom of the FTSE 100, slipping 126 pence to 2,783 pence, amid a slight slowdown in Primark’s expansion plans in terms of floor space compared with last year and evidence that like-for-like growth in the fourth quarter was closer to 3 percent.

The stock has jumped nearly 60 percent over the past year, mainly on the back of Primark's success. Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “Sales at Primark look to have fallen short of high investor expectations.”

Primark, a “top business model”

Retail expert and lecturer at the University of Ulster's Business School, Donald McFetridge, said in an interview with the ‘Belfast Telegraph’ that Primark is one of the few retailers still consistently reporting excellent trading statistics.

"Primark appears to have their fingers on the pulse in terms of product range, merchandise mix, visual merchandising, price point and quality to the extent that they have been able to rapidly expand and grow their store portfolio to almost 300 stores within a very short period of time," he said.

"Customers these days are paying less and less attention to the price-quality continuum and instead have come to regard 'perceived value' as a much more important performance indicator when it comes to purchasing catwalk fashion at high street prices.”

"The most valuable lesson other retailers can learn from Primark is to get this aspect of the retail proposition (whether or not the product is 'worth the money' or not) as near the Primark level of success as possible,” McFetridge concluded.

Angela González Rodríguez