Associated British Foods Plc shares slumped after the British conglomerate reported falling sales at its Primark budget fashion chain and gave a muted outlook for the sugar division next year.
Subdued consumer sentiment in Europe pushed Primark’s like-for-like sales down in the second half, declining 2.4 percent in the third quarter and with around a 2 percent drop projected in the fourth quarter, the company said Wednesday.
AB Foods, whose divisions range from grocery and agriculture to clothing, has also been affected by its loss-making sugar division and only expects some improvement in profitability next year.
The company’s shares fell as much as 12 percent, the most intraday since March 2020.
The second half was a challenging environment for the whole business “characterised by consumer caution, geopolitical uncertainty and inflation,” said chief executive officer George Weston.
Primark was particularly impacted by weak demand in Europe, and the business had to restructure its store portfolio in Germany and the Netherlands.
With its £14 ($19) cardigans and £12 joggers, Primark is in competition with Singapore-based fast fashion giant Shein Group Ltd., but with a much sparser online presence. The brand has long relied on its network of stores and is steadily growing its click and collect offer, but it still doesn’t do online delivery.
Primark has also been impacted by the departure of its CEO Paul Marchant earlier this year, who was dismissed for alleged inappropriate behaviour toward a woman. Eoin Tonge, finance director at AB Foods, is acting as CEO on an interim basis.
The chain is still opening more stores, with 15 new locations in the second half, mostly in the US. Primark is also now starting to selectively raise prices in the US along with competitors in reaction to higher costs due to President Donald Trump’s tariffs.
“Physically reticketing millions of items is a big and expensive task and we will see how the consumer reacts,” Weston said in a phone interview. “We think most other US retailers are also moving prices and we know that we’ll retain our competitive advantage.”
AB Foods will have to generate more margin next year to avoid a “significant trim” to consensus, according to Bloomberg Intelligence analyst Charles Allen. Primark’s largest market, the UK, was still sluggish, he said.
The company still expects to report a loss of around £40 million this year in its sugar business, where it has had to close its bioethanol plant in the UK and restructure parts of its Spanish operations.
“We expect the sugar business next year will be profitable but not as profitable as we would have hoped a year ago,” Weston said. “The difficulty is in Europe where prices have remained low for longer than we would have hoped.”
In its grocery business, which includes brands such as Twinings Tea and Jordans cereal, AB Foods expects adjusted operating profit in the second half to be slightly below previous expectations, mostly due to one-time restructuring costs. The company, which also owns UK bread brand Kingsmill, agreed to buy rival Hovis last month. Weston said there was “quite high” food price inflation, particularly in the UK.
By Katie Linsell
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