By James Davey
LONDON (Reuters) -Associated British Foods said underlying sales growth slowed at its Primark clothing business in the Christmas quarter, hurt by unseasonal warm weather at the start of the period.
The group also said on Tuesday it was monitoring the situation in the Red Sea but does not expect any significant disruption to its supply chain for now.
Primark’s like-for-like sales rose 2.1% in the 16 weeks to Jan. 6, its fiscal first quarter, a slowdown from growth of 8% in the previous quarter. Primark’s total sales were up 7.9%.
“It was a tricky period,” Finance Director Eoin Tonge told Reuters. “It started off very slowly with the weather and that impacted certain countries harder than others, particularly Spain where it was warmer for longer.”
However, trading at Christmas was strong, especially in the UK, Tonge said, adding that the group had flagged a slowdown in underlying sales growth.
AB Foods said it was more confident Primark’s adjusted operating profit margin would recover to over 10% in its 2023/24 year, driven by a further improvement in the cost of the products it buys.
“This should insulate us well against potential additional costs of supply due to the disruption in the Red Sea should they arise,” it said.
Attacks by the Iran-allied Houthi militia on ships in and around the Red Sea since November have slowed trade between Asia and Europe.
AB Foods, which also owns major sugar, grocery, agriculture and ingredients businesses, kept its forecast for a year of “meaningful progress” in both profitability and cash generation.
Shares in the group were up 1.3% in morning trading, extending gains over the last year to 24%.
It said the profitability improvement was being driven by the recovery in Primark’s margin, a marked improvement in British Sugar profitability and by reduced losses at Vivergo.
It also felt more confident in the continued strong performance of both its U.S.-focused grocery brands and of AB Mauri in ingredients.
In its first quarter, sales in the grocery business, which includes Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, rose 5.4%.
(Reporting by James Davey, Editing by Paul Sandle, Louise Heavens and Susan Fenton)