A slowdown in growth at discount fashion retailer Primark and higher sugar processing costs in Britain will hit owner Associated British Foods but the group said it still sees higher half-year profits.
The London-based company said like-for-like sales at Primark, which trades in Ireland as Penneys, will be 3 per cent ahead, showing a slowdown from analysts' forecast of 4 per cent growth in its first quarter, with the group blaming a "noticeable slowing down in UK consumer demand".
The 214-strong store group said its operating profit margins will be lower in the half-year, reflecting a hike in VAT in the UK and higher cotton prices, and warned that margins will stay under pressure in its second half.
Profits from sugar will be higher driven by rises in Spain and China helping to offset a fall in majority-owned Illovo and flat profits in the UK, but higher processing costs will hit UK profits by £20 million for the full year.
The group said a sudden thaw after sub-zero temperatures before Christmas hit the quality of sugar beet in the ground and led to a rise in processing costs, and UK sugar production this year is estimate to be just below 1 million tonnes compared to last year's 1.3 million tonnes.
Analyst Graham Jones at house broker Panmure Gordon held his forecasts for a 5.1 per cent half-year earnings rise to 32.1 pence a share and an increase of 2.7 percent to 74.1p for the year to September, with sugar and agriculture helping to offset weakness at Primark and at its ingredients division.
AB Foods was giving an update for its half-year to March 5th and ahead of its full interim results on April 27th.
Reuters
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