(Bloomberg) -- Associated British Foods Plc’s annual profit jumped and the company said momentum at its Primark clothing chain and food division is expected to continue this fiscal year, helped by easing input costs.
The British conglomerate, which also has large sugar, agriculture and ingredient arms, said pretax profit rose 43% to £1.9 billion ($2.5 billion) in the year to Sept. 14. The uplift was driven by a strong recovery in profit at Primark, which had to endure a difficult few years during the pandemic, a “return to normality” in many of its markets and easing supply chain problems.
AB Foods, which has boosted its full-year dividend by 50%, said it’s launching another share buyback program of £500 million, which will be completed before the end of this fiscal year.
Shares of AB Foods rose as much as 6% in early trading. The stock is up more than 13.5% in the past 12 months.
Primark, which generates about two-thirds of the group’s profit, should record mid-single digit percentage sales growth this fiscal year, the company said Tuesday. This comes after sales grew 6% at the affordable clothing chain last year.
Retailers had a difficult summer when washout weather in many key markets affected purchases but a cold autumn has helped with winter clothing sales. AB Foods said Primark had a “very encouraging” start to the sale of its autumn and winter ranges. The chain’s profit margin, which rose from 8.2% in 2023 to 11.7% last year, is expected to remain broadly the same this year.
British retailers are facing a significant increase in minimum wage costs following UK Chancellor of the Exchequer Rachel Reeves’ budget last week.
“This hasn’t felt like a budget for the high street,” AB Foods Chief Executive Officer George Weston said in an interview. “We have to find ways of offsetting these cost increases.” He said the company would look for “cost reductions in other areas” and focus on driving sales growth.
Weston said the business would be reluctant to increase prices given Primark’s affordable position in the market.
AB Foods’ grocery business, which recorded a 14% jump in adjusted operating profit last year, is expected to benefit from easing input cost inflation this year.
The group maintained its forecast for lower profit from its sugar arm this fiscal year, following a sharp drop in European sugar prices but said the situation should start to recover in 2026.
Unusually, AB Foods gave no “explicit qualitative guidance” for the current fiscal year, said James Grzinic, an analyst at Jefferies, but added: “The shares may find some support from a new £500 million buyback being confirmed today.”
“Noting the recent sugar disappointment, we are still ongoing supporters of the AB Foods investment thesis,” said Clive Black, an analyst at Shore Capital. “This well controlled firm has a sense of purpose, remains ever more relevant across its assortment, with an equity that still offers considerable upside potential from a ratings perspective.”
(Updates with analyst quote in final paragraph. A previous version corrected a name spelling in seventh paragraph.)
©2024 Bloomberg L.P.