LONDON (Reuters) - Primark-owner Associated British Foods (ABF.L) is set for a big jump in full-year earnings as shoppers snapped up bargains at its discount fashion chain and shrugged off the distractions of the Olympic Games and depressed economic growth in western Europe.
The retailing and food group said on Monday it expects annual earnings will be “substantially” ahead as Primark’s formula of cheap chic defies the economic gloom in its key markets of Britain, Ireland and Spain, while it also gained from strong sugar sales.
It reported particularly strong British Primark sales this summer while continental Europe was buoyant, as trading in new stores such as its July opening in Berlin exceeded expectations, and early sales of autumn and winter ranges was encouraging.
Its flagship Oxford Street store in central London saw some slowdown in the two weeks of the Olympic Games, but other stores compensated for this and the Oxford Street outlet soon recovered.
“June, July and August have been great for Primark in the UK. Trading has ticked up and there is no doubt Primark is thriving and gaining market share,” AB Foods Finance Director John Bason told Reuters after an end-of-year trading update.
Primark’s 242 stores, which sell chinos for 10 pounds and cable jumpers for 12 pounds, expect annual sales to rise 15 percent, while stripping out new store openings like-for-like sales are expected to rise 3 percent for the full year, ahead of the first half’s 2 percent rise.
This comes as many European retailers, such as Marks & Spencer (MKS.L), are struggling as consumers’ incomes are being squeezed by rising prices, muted wage growth and austerity measure from western European governments.
ABF, which also sells Silver Spoon sugar and Twinings tea, said profits at its sugar business for the full year will be “considerably higher” than last year due to the benefit of rising European and African revenues, and despite lower price in China which will see Chinese annual sales down.
Analyst Graham Jones at house broker Panmure Gordon forecasts earnings for the full year to September 2012 will rise 15.6 percent to 85.5 pence a share and he upgraded his Primark profit forecast after an acceleration in top-line growth.
“ABF will deliver impressive earnings growth in 2012, driven by a significant rise in sugar profits, but it is Primark’s long-term growth potential in continental Europe that most excites us,” Jones added.
The shares dipped 0.6 percent to 1,298 pence by 0720 GMT in a largely flat UK stock market.
The London-based group was giving a trading update towards the close of its financial year covering the 52 weeks to September 15. The company, which is 55 percent owned by Chief Executive George Weston and his family, is due to report full-year results on November 6
The group said it will take an exceptional charge of 100 million pounds ($160 million) due to a write down of assets at a meat factory in Australia for the current financial year. ($1 = 0.6240 pound)
Reporting by David Jones; Editing by Hans-Juergen Peters