Shares in Associated British Foods (LON: ABF) fell more than 11% on Thursday after the owner of Primark warned of weaker like-for-like sales at the fashion retailer and said losses at its Sugar business are likely to come in toward the upper end of its previous guidance.
The update raised fresh concerns over the pace of Primark’s recovery and the near-term profitability of AB Foods, despite the group saying its full-year adjusted earnings per share are expected to come in ahead of previous expectations.
Primark’s performance is particularly important for investors as AB Foods prepares to separate the retailer from its food operations in a demerger expected to be completed in December 2027.
Primark sales remain under pressure
Primark’s like-for-like sales are expected to decline 3% in the fourth quarter ending Sept. 12, following a 2.2% fall in the previous quarter.
For the full fiscal year, like-for-like sales are expected to fall 2.6%.
Total sales, however, are forecast to increase 2% in both the fourth quarter and the full year, helped by the retailer’s continued store expansion.
The weakness in comparable sales suggests that newer stores are helping Primark grow its overall revenue but are not yet translating into a broad-based recovery across its existing estate.
“Actions to strengthen Primark’s customer proposition have continued at pace. Our priority focus areas, the UK and womenswear, continued to outperform our other markets and categories. Trading in continental Europe remained challenging, where actions to strengthen our customer proposition are at an earlier stage,” Chief Executive George Weston said.
The performance in Europe is emerging as a particular concern for investors, with the region accounting for a substantial portion of Primark’s store network.
Mark Crouch, market analyst at trading platform eToro, said the retailer’s recovery remained some way off.
“The sharp drop at the open is the market saying Primark’s turnaround is still a story, not a number,” he said.
Expert View
Like-for-like sales at Primark, expected down 3% in the fourth quarter after a 2.2% drop in the third, tell investors the recovery they had started to price in is not here yet. Summer price cuts and a sharper UK offer have not turned the existing store base. New shops in the US can still lift the headline. They cannot, on their own, justify the multiple a standalone Primark will need. Europe remains the problem, and that is half the estate.
Sugar losses add to investor concerns
AB Foods’ Sugar business provided another source of pressure in Thursday’s update.
The company now expects the division to report an adjusted operating loss toward the upper end of its previous £25 million to £60 million guidance range for fiscal 2026.
AB Foods blamed the deterioration on provisions for onerous contracts, weak sugar prices in Europe, higher gas costs and lower expectations for the UK’s beet crop yield.
The outlook becomes more challenging in 2027.
The company expects the Sugar division’s adjusted operating loss to widen significantly to between £70 million and £170 million.
Higher gas costs and weather-related risks in Africa are among the factors expected to weigh on the business.
The worsening Sugar outlook threatens to offset improvements elsewhere in the group, increasing the importance of Primark’s eventual recovery and the performance of AB Foods’ other food divisions.
Jefferies analysts described the trading update as a “downbeat outlook for the stock this morning”, pointing to a muted end to the year for Primark and particularly weak sales in Europe.
Food businesses provide some support
Not every part of AB Foods’ portfolio is struggling.
Grocery sales are expected to increase in the mid-single digits during the fourth quarter, while revenue from Ingredients is forecast to rise 10%.
Agriculture is expected to be weaker, with sales forecast to decline in the mid-single digits.
At the group level, AB Foods said adjusted operating profit should be broadly in line with previous expectations, while adjusted earnings per share for fiscal 2026 are expected to be ahead of earlier forecasts.
However, investors are already looking beyond the current year.
Expert View
All in, ABF reiterated its rather vague full-year guidance for group-level underlying operating profits to fall below last year’s level of £1.7 billion. But market forecasts are sitting around 13% lower at £1.5 billion, which feels more realistic to us. Today’s update has done little to hint that a sharp improvement in fortunes is around the corner for ABF, and profitability in the Sugar division looks set to worsen still in 2027, offsetting progress in other parts of the business.
Primark to launch UK home delivery: can it save its sales?
Against the backdrop of weaker sales, Primark is also taking a significant step in its digital strategy.
The retailer will offer home delivery in Great Britain for the first time, with AB Foods disclosing that it has acquired an automated fulfilment facility in Sheffield.
The company said home delivery would be introduced “in the future” and argued that Primark’s growing digital capabilities and the success of its click-and-collect service create an opportunity for profitable online growth.
“Primark’s digital maturity, including the success of click and collect, and online market developments, mean there is now the opportunity for profitable growth through the home delivery channel,” the company said.
The move addresses one of the major gaps in Primark’s business model.
Unlike many of its fast-fashion rivals, the retailer has historically relied heavily on physical stores and has had a limited online proposition.
The Sheffield fulfilment centre could therefore provide Primark with a new avenue for revenue growth as it prepares to become a standalone company.
Crouch said the move was strategically appropriate but would not immediately change the market’s view of the business.
“Home delivery in the UK is the right call and closes a long-running gap. It will not rescue this Christmas, and the market has treated it accordingly,” he said.
“The longer-term case still seems intact for patient investors: a decent balance sheet, a 2027 split that should surface value, and a brand that still works when the offer is right. This morning is a reminder that the City is no longer paying up for the plan. It wants proof on the shop floor, and it did not get it,” Crouch said.
Demerger puts focus on Primark’s standalone value
The weak trading update comes at an important point in AB Foods’ longer-term strategy.
The company plans to separate Primark from its food operations, potentially creating two FTSE 100-listed businesses.
Analysts have estimated that Primark could be valued at as much as £9 billion, while the food business could be worth around £4 billion.
The demerger is intended to allow investors to value the retailer and food businesses independently, potentially unlocking value that is difficult to capture within the existing conglomerate structure.
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