Associated British Foods encouraged with Primark bounce back

The “pingdemic” came at a bad time for Primark, throttling some of the recovery it had been seeing and holding back sales in the fourth quarter.

Article updated: 13 September 2021 8:00am Author: Richard Hunter

Footfall was affected by the caution of consumers to shop as well as those needing to self-isolate, with like-for-like sales down by 17% for the final quarter as compared to two years ago. Outside of the UK, various restrictions were in place in different locations over the period, further hampering progress, except for the now profitable US presence where like-for-like sales rose by 3% compared to two years previous.

However, when access to the stores was unfettered, the picture was extremely bright. A combination of pent-up demand and very high basket sizes propelled sales and, since the easing of further restrictions, sales of the likes of the back to school ranges started strongly.

At the same time, the management of inventory levels has been essential in mitigating the damage, and the group managed to sell all of the stock held over from last spring and summer, with similar expectations for the upcoming autumn and winter ranges.

This prudent management is also reflected in the expected numbers for the full-year, where the power of the group’s cash generation is likely to result in a net cash position of £1.9 billion, which compares with £1.5 billion at the end of the third quarter and £1.6 billion last year, providing AB Foods with a war chest in the event of future unforeseen challenges.

Equally importantly, adjusted operating profit for the year, which will exclude a £96m repayment of furlough monies, is expected to exceed last year’s number. This has also been underpinned by a Grocery division which is holding its own and from Sugar, which represents 12% of overall revenues, which is expected to post an increase in full-year revenues of 7% after a strong final quarter and the ongoing success of the Illovo brand.

One of the key limitations around Primark has been the lack of an online presence, which the group is now looking at least to partially rectify. The initial design and development of a new digital platform is underway, with expectations that this can be rolled out next year.

In all, though, the group continues to reap the benefits of its diversified model both by business lines and geography. The effective profit upgrade and the future potential for Primark’s expansion, including but not limited to overseas, is a strong building block. The more recent headwinds for Primark in particular have held back the share price, which has risen just 2% over the last year as compared to a gain of 16.5% in that period for the wider FTSE100, but investor appetite for the stock is undiminished. The market consensus of the shares remains rooted to a strong buy with the longer-term picture in mind.

More from Richard Hunter: read more articles directly on the interactive investor website.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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