The owner of Primark has revealed a drop in UK sales while also raising questions about the future of its loss-making Allied Bakeries arm which produces big selling Kingsmill loaves
Budget fashion giant Primark has suffered a rare fall in sales – and fears have been raised for its owner’s Kingsmill bread making arm. Associated British Foods said Primark takings in UK and Ireland stores open at least a year fell 4% in the six months to March.
The firm blamed last year’s mild autumn and a “cautious consumer sentiment”, with ABF chief executive George Weston singling out the Budget. It also coincided with an investigation into long-running Primark boss Paul Marchant and his behaviour towards a woman. Marchant stepped down at the end of March after his alleged conduct “in a social environment”. Exact details of the incident haven’t been disclosed.
Weston insisted: “It’s been very reassuring how quickly all the teams at Primark have got back to work. Obviously it was a significant issue at the time but we have moved on.” He refused to disclose if Marchant, 56, who ran Primark since 2009, got a pay-off.
Increased sales in other countries helped Primark’s half-year profits rise 6.3% to £540million. Weston said it would was committed to expansion in the US, despite President Donald Trump’s trade tariffs. He added that trading had improved in recent weeks on the back of better weather conditions, helping to boost sales of spring and summer clothing.
But he said Primark had seen a “significant” rise in labour costs after increases to national insurance contributions and wage rises – but plans to keep prices flat. “We went nine years without moving prices before inflation forced us to change pricing a couple of years ago, but since then we have brought down the price of kids’ clothing,” he said.
“We haven’t moved any more prices and are absolutely not planning to move any more. Hopefully we can keep them flat for another eight or nine years. There has been some benefit from weakness in the US dollar and benign cotton costs, but there are labour cost rises which we are choosing to absorb.”
ABF is also considering “strategic options” for its loss-making Allied Bakeries arm. The division, which makes Allinson’s, Sunblest and big-seller Kingsmill, has 12 sites across the UK and Ireland. However, it has suffered from a decline in bread eating and recently lost a Tesco contract. “The business is losing a fair amount of money and the industry needs a structural solution,” Weston said. “I really can’t speculate on what the solution might be but we are looking at a solution that will allow this business to be sustainably profitable” ABF is set to give an update by the end of the year.
Weston also warned it could shut its bioethanol plant in Saltend, near Hull, putting around 150 jobs at risk, if negotiations with the government over “subsidised” for international competitors fail. The plant, only opened in 2007, produces green transport fuel which can be mixed with petrol, and also creates animal feed.
Sales across ABF’s retail arm, which is predominantly the Primark brand, improved by 1% to £4.5billion over the 24 weeks to March 1. Group-wide profits slumped by 21% to £692million as it highlighted weakness in its sugar business. ABF’s shares were down nearly 8% by late afternoon, wiping more than £1billion off its stock market value.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “ABF delivered a not-so-sweet set of results, with performance in both its sugar and retail businesses disappointing markets.
“Primark’s soft start in the early weeks of the year continued throughout the first half, with revenue struggling to gain momentum, especially across the UK and Ireland. There’s cautious optimism that the good weather will help bring increased footfall into its stores, helping to boost sales over the second half. But Primark’s relying on overseas growth to prop up performance and keep full-year guidance on track, which points to low single-digit revenue growth.”
He added: “Profits in the sugar business haven’t been so sweet lately though. A sharp fall in sugar prices saw the division turn loss-making, with underlying operating profits down more than £140million on last year.”