The Associated British Foods plc (LON:ABF) (ABF.L) share price has fallen by around 2% today after the company released an update to coincide with its AGM.
Sales and profits for the first eight weeks of its financial year have been in line with expectations. The company, though, has seen difficult trading conditions for its Primark retail brand in November. A tough retail market means that the company is focused on careful inventory management and improved margins, with its expectation for Primark’s full-year performance currently unchanged.
ABF intends to continue with its strategy to increase Primark’s selling space. It anticipates an increase in retail profit for the year. It is set to trade from 364 stores following the opening of a new store in Belfast tomorrow.
In its Grocery division, the company anticipates stronger profitability from an improved margin in its Australian and UK businesses, as well as a full year contribution from Acetum. The profit at AB Sugar is due to be significantly down as a result of the full year effect of EU sugar prices.
Overall, the company is on track to meet guidance for the financial year. I wouldn’t be surprised, though, if the prospects for Primark remain somewhat volatile. I think that consumer confidence is weak, and this trend could continue as the Brexit process moves along. Consumers seem to be unsure about the prospects for the UK economy, so even if inflation remains below wage growth they may become increasingly price conscious.
This could be good news for Primark and for ABF, though. In my view, a more price-conscious consumer may mean that budget brands become increasingly popular relative to the wider retail sector. Therefore, with the company having performed as expected in the first part of the year, I remain relatively optimistic about its medium-term outlook, although its share price could be volatile.