Associated British Foods Fast-Tracks Update as Primark Falters, Cuts FY Profit and EPS View

Core Viewpoint - Associated British Foods (ABF) has reported weaker-than-expected performance at Primark, leading to a forecast of lower full-year adjusted operating profit and adjusted EPS compared to the previous year [4][6][3] Group Performance - Primark's total sales grew approximately 1% in the first quarter, with mixed performance across regions and a continuation of trends from the second half of fiscal 2025 [3][6] - In the UK, Primark achieved total sales growth of 3% and like-for-like growth of 1.7%, gaining market share despite a challenging retail environment [2][4] - The company expects H1 sales growth for Primark to be in the low single digits, impacted by heavy markdowns that have reduced profit margins [8][6] Regional Insights - In continental Europe, the consumer environment remains tough, with management noting that UK-style initiatives have not yet been fully rolled out but are now in progress [1][11] - The US retail environment is described as volatile, affecting sentiment and footfall, although new store openings contributed positively to sales growth [7][12] Food Division Performance - The food divisions are experiencing softness, particularly in the US, with challenges in cooking oils and bakery ingredients leading to a cautious outlook for grocery and ingredients segments [5][13] - ABF anticipates that full-year adjusted operating profit for grocery and ingredients will be moderately below last year due to worsening consumer weakness [13][14] Strategic Initiatives - To manage inventory levels, ABF has significantly increased markdowns, which have negatively impacted profitability, with an adjusted operating profit margin expected to be around 10% if current trends persist [9][6] - Management emphasized the focus on driving like-for-like sales and top-line growth rather than targeting specific margin levels [10] Market Dynamics - Primark executives noted broad weakness across European markets, with specific challenges in France, Italy, and Germany, while Spain showed only moderate performance [11][18] - The company is working on improving price perception and brand awareness, particularly in markets like France where it lacks scale [18] Digital and Structural Developments - ABF plans to enhance digital capabilities in Europe over time, including the rollout of click-and-collect services [18] - The review of group structure remains ongoing, with an update expected in April [19]