British consumer is still spending says Primark owner

Published Mon, Feb 27, 2017 · 11:08 AM
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[LONDON] Associated British Foods, owner of discount fashion retailer Primark, said on Monday it was not seeing any signs that British consumers were starting to rein in spending, contradicting official data which has pointed to a slowdown.

Shoppers have driven growth in Britain's economy since the country's vote in June to leave the European Union. But they are widely expected to turn more cautious as prices rise following the fall in the value of the pound after the referendum.

Official data released earlier this month showed shoppers bought less in January while inflation hit its highest level since mid-2014 at 1.8 per cent.

However, AB Foods said Primark's sales at UK stores open over a year would be up 2 per cent in its first half, which ends on March 4, and it had won market share. Primark competes with firms such as Next, TopShop and Marks & Spencer.

"There is not an indication of people pulling back at this stage," finance director John Bason told Reuters.

"The consumer in the UK has got more disposable income this year than they had a year ago - fact," he said.

Mr Bason noted that while inflation is picking up it remained below 2 per cent.

"That's where we are at this stage, the full effect of the devaluation of sterling still has to play through."

AB Foods said total first-half sales at Primark were expected to be 11 per cent higher than last year at constant currency, driven by increased retail selling space, and 21 per cent ahead at actual exchange rates - a similar performance to the first quarter outcome.

Primark accounts for about half of AB Foods' profit.

The group maintained its full-year earnings guidance with the growth at Primark supported by better performances in its sugar, grocery, agriculture and ingredients businesses.

"This is an example of a business that's firing on all cylinders," said Mr Bason.

He reiterated, however, that Primark's operating profit margin in the first half will decline, mainly reflecting the strength of the US dollar on input costs.

The group said it still expected progress in overall adjusted operating profit and adjusted earnings per share in its 2016-17 year, after seeing "excellent progress" in the first half.

It made adjusted operating profit of £1.12 billion (S$1.974 billion) in 2015-16, with adjusted earnings per share of 106.2 pence.

Analysts on average forecast adjusted EPS of 118.5 pence for 2016-17, according to Reuters data.

Shares in AB Foods, a majority of which are owned by the family of Chief Executive George Weston, have fallen 23 per cent over the last year but have risen 8 percent over the last month.

They were down 0.7 per cent at 2,593 pence at 0942 GMT, valuing the business at about £20.7 billion.

Richard Chamberlain, analyst at RBC Europe, reiterated his "outperform" rating for AB Foods, highlighting its potential for double-digit EPS growth, Primark's international roll out and the group's strong balance sheet.


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