ABF's Primark shrugs off warm autumn with 10 percent sales rise

By James Davey

LONDON (Reuters) - Discount fashion group Primark has shrugged off the unseasonably warm autumn weather blamed by rival chains such as Next Plc for slack recent results, reporting 10 percent sales growth at the start of its new financial year.

Primark's performance also helped boost yearly earnings at parent Associated British Foods Plc (ABF) , offseting a slump in profits from its sugar business and sending its shares up more than 2 percent.

Recession-era shopping habits have become entrenched in Europe as consumers grapple with stagnant earnings, benefiting discounters like Primark - whose popular lines include a Harry Potter sweater priced at 8 pounds ($13) - and Aldi and Lidl in food, while pressuring mid-market brands such as Tesco .

ABF warned it saw limited opportunity for earnings growth in the coming year at group level due to an expected further large fall in sugar profits, due to low prices and falling volumes.

But ABF chief George Weston said that while the weather had impacted recent trading at Primark, whose other top-sellers include block-heel ankle boots at 15 pounds, the business had not had to delay or cancel any orders from suppliers.

"I'm really not concerned ... We've carried such momentum into this year that despite the warm weather ... in the first six weeks (of the 2014-15 year) our sales and profits in Primark are both up by over 10 percent," he told Reuters on Tuesday.

"Yes there's been an effect, but every year you get unseasonal weather at some point," he added.

Shares in ABF, 55 percent owned by the Weston family, were up 2.7 percent at 2,742 pence by 11:07 a.m., valuing the business at 21.6 billion pounds. The stock has risen 19 percent over the past year, mainly on the back of Primark's success.

Growth at ABF, which posted a 6 percent rise in yearly earnings, has been led by Primark as it expands into new markets. It trades from 283 stores in nine European countries and said it is on track with plans to enter the United States towards the end of 2015.

Weston said Primark had had a "magnificent" year, noting its five-store entry into France as a particular success.

Analysts at retail researcher Conlumino said: "Shopping at Primark is no longer something to be whispered about. Improved perceptions of its quality and fashionability have helped Primark to break through the fashion snobbery."

HIGHER DENSITIES

In the year to Sept. 13, Primark posted a 29 percent rise in adjusted operating profit to 662 million pounds on revenue up 16 percent to 4.95 billion, driven by a net increase in retail selling space of 1.2 million square feet, a 4 percent rise in sales at stores open a year or more and higher sales densities in new stores.

While Primark's performance in the first 10 weeks of its new year does represent a slowdown - analysts said like-for-like sales excluding new space were likely down - it still compares well with peers which have suffered from the warm September and October, putting people off buying coats, knitwear and boots.

Britain's Met Office said the UK had its driest September since records began more than a century ago, while October experienced the country's hottest Halloween Day ever.

Last week both Next and SuperGroup warned on annual profit, while Marks & Spencer , Britain's biggest clothing retailer by annual sales, is expected to report on Wednesday a 13th straight quarter of declining sales in its general merchandise division, which includes clothing.

ABF made adjusted earnings per share of 104.1 pence in the year to Sept. 13, up from 98.9p in 2012-13, with Primark and a strong performance from the group's grocery business, which includes Kingsmill bread, Twinings tea and Ryvita biscuits, offsetting the adverse impact of lower sugar prices.

Adjusted operating profit in sugar slumped 56 percent to 189 million pounds and group revenue fell 3 percent to 12.9 billion pounds, while adjusted operating profit fell 1 percent to 1.16 billion. The company is paying a final dividend of 24.3p, making a full-year total of 34p, up 6 percent.

ABF forecast a marginal decline in adjusted operating profit in the 2014-15 year but said the impact on earnings would be mitigated by much lower tax and interest charges.

"By the end of our 2015 financial year much of the structural change in EU (sugar) prices will be behind us and we have every reason to be confident of further progress for the group thereafter," it added.

(1 US dollar = 0.6251 British pound)

(Editing by Kate Holton and David Holmes)