July 11, 2013 / 6:37 AM / 4 years ago

UPDATE 2-Primark lifts sales for upbeat AB Foods

* AB Foods Q3 revenue up 8 pct

* Primark Q3 sales climb 20 pct

* Group says on track to meet full-year expectations

* Shares up 7 pct (Writes through, adds shares, quotes)

By Neil Maidment

LONDON, July 11 (Reuters) - Associated British Foods is seeing signs of improving consumer confidence in Britain, with a strong performance from its Primark discount clothing chain helping to lift third-quarter sales by 8 percent.

While many British retailers have struggled as consumers fret over job security and squeezed incomes, Primark’s low prices are pulling in cost-conscious customers who are at last beginning to loosen their purse strings.

Primark’s performance supports recent British retail data showing a steady rise in sales, while a separate study suggested that consumer morale reached a two-year high.

“I think the UK is pointing in the right direction,” AB Foods Finance Director John Bason told Reuters on Thursday. “I think the UK consumer remains careful; but for the right things, the UK consumer is spending. Our view is that it’s not getting worse.”

Sales at Primark, which has more than 250 stores in Britain and Europe and generates about a third of the group’s profit, grew 20 percent in the 16 weeks to June 22 and are up 22 percent in the year to date. AB Foods shares rose 6 percent on the news.

As expected, Primark’s third-quarter sales growth was slower than in the first half of its financial year, when sales rose 24 percent including new stores and by 7 percent on a like-for-like basis. It’s third quarter was hit by freezing weather in March and April, which kept shoppers off the streets.

AB Foods, which will step up Primark’s store openings in the new financial year, including its first in France, said that underlying sales had been “subdued” by cold weather in the period but had recovered “markedly” since then.

RATING UPGRADE

Third-quarter revenue at the group’s grocery division, which includes the Twinings, Ryvita and Ovaltine brands, rose 7 percent. However, its sugar business saw revenues fall by 15 percent because of delivery timings in the UK and shipments of Zambian exports to the EU coming after the end of the quarter.

AB Foods said that it remains on track for adjusted full-year earnings per share (EPS) in line with expectations.

A note from Panmure Gordon analysts said: “AB Foods is, in our view, on course to deliver another year of double-digit EPS growth in 2013. Primark’s growth remains particularly impressive ... we believe Primark is set for another decade of strong growth.”

The broker moved its rating to “buy” and raised its price target from 18 pounds to 21 pounds.

Primark’s fortunes contrast with fellow FTSE 100 retailer Marks & Spencer, which on Tuesday posted an eighth consecutive quarterly fall in clothing sales.

Primark added that its first foray online in a trial launched last month with online fashion merchant ASOS had drawn an “excellent” response, though it reiterated that the initiative remains a trial.

The business came under scrutiny in April after 1,129 people died in the collapse of a factory in Bangladesh, where clothes were made for various international brands including Primark.

The collapse of the Rana Plaza building ranks among the world’s worst industrial accidents and highlighted the risks involved with the global retail industry’s search for cheap production.

In May a new accord was launched by trade unions and signed by 70 brands, including Primark, which have agreed to accept legal responsibility for safety at their Bangladesh factories.

Shares in AB Foods, which have risen 41 percent in a year, were up 7.4 percent at 19.49 pounds by 0825 GMT. Analysts expect the company to post annual earnings per share of 96.41 pence, according to Reuters data, up 10.6 percent on 2012. (Editing by Elaine Hardcastle and David Goodman)

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