Primark owner Associated British Foods cautious about consumer sentiment and inflation
Primark owner Associated British Foods (ABF) has said it is “cautious” about consumer sentiment and inflation after revealing a slump in profits.
It added that profits are on track to fall again next year amid weakness in its sugar operation.
Bosses at the consumer giant said trading over the past year reflected a “challenging” environment and “macroeconomic headwinds”.
The company reported that adjusted pre-tax profits slipped by 14% to £1.46 billion for the year to September 12, compared with the previous year.
Profits weakened across the Primark retail business by around 11% for the year, ahead of the brand’s planned demerger.
ABF said it still expects to split off the Primark business in a stock market listing by December next year, leaving a food-focused standalone business.
Primark saw sales increase by 4% to £9.8 billion for the year, driven by new store openings in Europe, the US and through franchise sites in the Middle East.
Like-for-like sales were 2.6% lower due to a “challenging consumer environment across most markets”, the retailer said.
It added that UK like-for-like sales improved after efforts to lower prices and improve its value perception among shoppers.
The group said it remains in an “earlier” stage of recovery in Europe, where it highlighted particularly weak sentiment among consumers.
Primark said it expects further store openings to boost growth in the new financial year.
ABF told shareholders that sales grew by 3% to £4.2 billion in its grocery division, compared with a year earlier.
Its Twining business reported positive international growth but was “held back by lower sales in the UK and France” due to the long hot summer impacting tea demand.
In the UK, the group saw double-digit growth in its sports nutrition division and improved trading in Ryvita after restructuring last year.
George Weston, chief executive of ABF, said: “Looking ahead, while we remain cautious about consumer sentiment and commodity costs, we will continue our sharp focus on driving financial performance and delivering the growth opportunities from capital investments across the group.
“We are on track to complete the demerger of Primark from AB Foods in December 2027, positioning both businesses to deliver on their medium and long-term growth prospects.”
Susannah Streeter, chief investment strategist at Wealth Club, believes the retailer’s appeal has been challenged by other fast-fashion retailers.
She said: “Primark isn’t just battling against a fall in consumer confidence but it’s also facing increasingly tough competition from fast-fashion rivals. Primark’s cheap and cheerful crown is under threat from Shein and Temu, who can deliver a dazzling array of garments to the door, often at a fraction of the price. Primark has been very late to the online shopping party and it’s come at a cost, as its appeal has been challenged by the new kids on the cheap fashion block.”