British food and fashion world Associated British Foods blamed the unusually hot summer across Europe for a predicted decline in an important sales measure in its fashion brand Primark.
The identical store sales at Primark will be 2% lower in the year to mid-September, ABF predicted, although the total turnover will grow by 5.5%, thanks to new stores in Italy, Spain and Brooklyn in the US.
Primark provides approximately 60 percent of ABF's operating profit per year. Although the chain will add 900,000 square feet of space this year and another 1 m in 2019, investors are worried that it will eventually fall victim to changing consumer habits, especially as it does not sell online. ABF shares have fallen about 20 percent this year compared to a 5% decline in the FTSE 100 index.
The further pressure on ABF shares stems from the weakness in its sugar trade, which suffers from lower prices due to the global oversupply and the end of EU production and export restrictions for European producers.
Nonetheless, it is expected that the profits of Primark and ABF & # 39; s activities in the areas of food, agriculture and ingredients will "more than compensate" for falling sugar prices in the EU, "said the group in a trading update before the end of the year on Saturday. . This allowed it to confirm its annual guidance for improved operating results and earnings per share.
The margins at Primark also recovered after the shrinkage in the first half of the year, helped by a weaker dollar. Operating margins for the full year would be around 11 percent, according to ABF, compared to 10.4 percent last year.
Predicting what will happen to Primark's margins in 2019 will be hampered by uncertainty about Brexit and its effect on currency values, said financial director John Bason in an interview.
The operating margins at Primark will be stable next year at 11 percent, if the group can secure its spring / summer merchandise at the current exchange rates. Whether this is possible depends largely on the Brexit negotiations and their impact on the pound sterling.
"Of all the years that I have looked to give direction in the coming year, the uncertainty about how the Brexit will affect the British pound makes the prognosis difficult," says Bason.