Strong performance from Penneys keeps AB Foods on track

A strong first-half performance from discount fashion chain Primark, known as Penneys in Ireland, offset weakness in Associated British Foods' sugar business, to help the group maintain full-year earnings expectations. The firm said today it continued to expect adjusted earnings per share for the 2013-14 year to be similar to the 98.9 pence made in 2012-13.

AB Foods said underlying operating profit for its first half to March 1st was expected to be in line with last year, but cautioned that sterling was continuing to strengthen against its major trading currencies and this would have a more significant negative effect on the translation of overseas results into sterling in the second half.

The firm said Primark’s first half sales were expected to be 13 per cent ahead of last year on a constant currency basis, driven by an increase in space and a 4 per cent rise in sales at stores open over a year. Primark’s operating profit margin was forecast to be higher than in the same period last year, benefiting from warehouse and distribution efficiencies and lower freight rates.

Revenue and profit from the group’s sugar division in the first half will be substantially lower. AB Foods has previously guided that lower sugar prices, as the market adjusts ahead of EU regime reform in 2017, will result in a substantial reduction in profit from its sugar businesses this year. The group has also previously stated that it expects Primark’s profit will be well ahead of the previous year.

ABF forecast revenue in its grocery business, which includes Silver Spoon sugar, Twinings tea and Ryvita biscuits, would be ahead of last year at constant currency, with improved margins. It said revenue and operating profit in agriculture was expected to be similar to last year, while revenue and profit in ingredients would be ahead.

Earlier this month investment bank Morgan Stanley said that Penneys could be worth close to € 36 billion, forecasting that by 2018, Primark will account for 42 per cent of sales and 62 per cent of profits within the wider AB Foods group, driven in part by the acceleration of the store's expansion in Europe.

(Additional reporting Reuters)