The Associated British Foods (LSE: ABF) share price plunged 14% on 8 January, following a shock profit warning based in estimates sales figures. And it’s been in decline since early summer 2024. But it edged up a bit Thursday morning (22 January) on the back of a fuller trading update for the 16 weeks to 3 January.
The problems stem from a poor Christmas trading period. CEO George Weston initially said: “Primark has had a challenging start to the financial year, with a mixed performance.” And Primark really has been the jewel in the crown for the company for some time.
Like-for-like sales
The latest update confirms just a 1% increase in total sales compared to the same period a year ago. That’s maybe not too bad. But like-for-like sales have been a bit of a worry, falling 2.7% in the period. These figures are in line with the earlier estimates, so there’s no change. But it does eliminate the uncertainty, with the weaker trading at least no worse than feared.
Looking at Associated British Foods’ retail business in general, sales in the period rose 4.2% at actual currency — better than the original 4% estimate. Grocery sales were largely unchanged.
These aspects of the company actually look reasonable to me. I really wasn’t expecting Primark, or retail in general, to have a great holiday season this year. Not with all the turmoil in the economic situation in the UK and globally. So, not brilliant, but no great worry — that’s my take.
Not Primark
When it comes to ABF’s other businesses, I’m less happy. Sugar revenue did worse with a 4.3% fall than the earlier 2% drop estimated. Agriculture down 4.1% and Ingredients dipping 2.9% are largely in line with the initial figures. On a geographic basis, sales in Europe (excluding UK and Ireland) fell 1% in total, but declined 5.7% on a like-for-like basis.
All in all, I see Associated British Foods as a confusing mess for investors thinking of buying. Almost half the company’s sales come from Primark, a trusted brand with a loyal following. It’s the first place I looked when I needed a suit last year — though I found nothing appropriate for my corporeal magnitude and I ended up paying more than I hoped at Marks & Spencer.
Still, socks, underwear, t-shirts… it’s where I go. I like Primark, and I see a positive future for it when inflation gets back to treading a downward path.
Time for change?
One statement in November’s full-year results stood out to me. “Board review of group structure announced, which may lead to a separation of the Primark and Food businesses,” it said.
If that should happen, I’ll definitely consider buying Primark shares. But for now, I’ve no interest in sugar beet or pig food. At least the latest news has put a stop to the month’s ABF share price fall. And I could see a slow recovery coming.
