Primark expected to announce sales rise as parent firm updates investors

Primark parent firm Associated British Foods (ABF) is expected to announce another rise in sales when it updates investors next week.

However, disruption from delayed shipments due to travel through the Red Sea, weaker UK high street footfall and wage hikes from April could all pose a challenge to the firm’s recent progress.

Shares in the company, which also owns large grocery and agriculture operations, have lifted by about a quarter over the past 12 months.

This was supported by confident updates in September and November, where the consumer giant pointed towards strong profits on both occasions.

Shareholders will be hopeful for similar positivity when ABF reports its figures for the latest quarter in a trading update on Tuesday 23 January.

Much of the recent positive sentiment surrounding the firm has been driven by improved earnings at Primark, the group’s high street fashion chain.

On Tuesday, the company is expected to announce another quarter of growth at Primark over the key Christmas period.

Liberum analysts Anubhav Malhotra and Wayne Brown have predicted a “solid start” to ABF’s financial year and suggested the group could deliver “stronger than expected” profits at Primark, as well as its sugar business.

Over the past year, Primark has seen profitability improve on the back of easing inflationary pressures, with commodity and energy costs settling down.

However, continued macroeconomic and geopolitical uncertainty could prove a stumbling block in efforts to keep profits growing.

“The very confident tone set out in September and November is challenged by a confirmed 10% hike in UK living wages, incremental costs from Red Sea disruption and peers calling a peak in sugar prices,” said Jefferies analyst James Grzinic.

Fellow retailer groups such as Next and Ikea warned earlier this month that delays to deliveries redirected away from the Suez Canal because of attacks in the Red Sea could lead to inflationary pressure if they persist.

Investors will be hopeful ABF can show how it is seeking to limit the potential impact of this disruption on its supply chain costs or product availability.

ABF’s costs will also remain under pressure from higher labour expenditure, with the minimum wage rising by about 10% in April. Shareholders will therefore be keen to see if this has an impact on the firm’s profit outlook.

Another factor will be broader consumer sentiment, with official data from the Office for National Statistics showing a slump in retail sales volumes in December amid weak high street footfall.