AB Foods raises profit outlook as Primark gets summer boost

By James Davey

LONDON (Reuters) -Associated British Foods raised its full year profit outlook on Monday with its Primark fashion business boosted by warm weather kicking in across its European markets and its food unit trading well.

Consumers across Europe have defied expectations of a slowdown as their spending power has been eroded by high inflation.

Last week Primark rival Next, raised its sales and profit guidance for the year, saying trading had exceeded expectations on the back of warmer weather and consumers' wage increases.

Also Zara owner Inditex (BME:ITX), has reported a strong start to summer, while H&M has reported a strong start to June.

"The doom and gloom (commentary) has been around now for almost 12 months and the consumer continues to outperform the doom and gloom," AB Foods (LON:ABF) finance chief Eoin Tonge told Reuters.

Primark's 13% jump in sales to 2.0 billion pounds ($2.6 billion) in the 12 weeks to May 27, its fiscal third quarter, was driven by higher average selling prices and strong sales of seasonal clothing and accessories as well as health and beauty products. Like-for-like sales rose 7%.

"Most of our markets kicked in when the sun started to shine," said Tonge, noting trading in the United Kingdom had been even better in June as temperatures soared.

Primark had forecast in April that like-for-like sales growth would moderate in its second half from the 10% achieved in the first half, given the ongoing cost of living crisis.

UK households are in the midst of the biggest two-year squeeze in living standards since comparable records started in the 1950s, according to government forecasters. Inflation is running at 8.7% and consumers are also being hurt by higher taxes and borrowing costs.

However, UK retail sales rose in May, according to official data, suggesting most consumers are coping with the hit to their spending power.

AB Foods, which also owns major sugar, grocery, agriculture and ingredients businesses, said it now expected full-year adjusted operating profit, its key profit measure, to be "moderately ahead" of the 1.435 billion pounds made in 2021/22. It was previously forecasting an outcome broadly in line.

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The group, whose shares have risen 23% so far this year, said third-quarter sales in its grocery business, which includes Twinings tea, Jordans cereals and Ovaltine drinks, rose 13% to 1.06 billion pounds, driven by price rises implemented earlier in the year to offset input cost increases.

($1 = 0.7848 pounds)