Primark Like-For-Like Sales in H1 Still Below Coronavirus Levels; Guidance Unchanged

Associated British Foods reported its preclose trading update for the 24 weeks to March 5 (first half of fiscal 2022) with Primark like-for-like sales expected to be about 11% below two years ago, and well over 60% versus last year (limited store closures in the first half of fiscal 2022 versus prolonged periods of store closures in same period last year). In the U.K., sales are expected to be 9% below two years ago, with stores in retail parks and town centers continuing to outperform destination city center stores. Like-for-like sales in continental Europe are expected to be 14% below two years ago with total sales below 2% on a two-year basis due to an increase in retail selling space (12%). The U.S. segment continues to fare batter relative to other regions with an expected 2% like-for-like sales growth on a two-year basis and total sales ahead 35%, reflecting new store openings. The company expects Primark to achieve 11% operating margin with inflation on raw materials and supply chains broadly mitigated by a reduction in store operating costs and overheads and a favorable U.S. dollar exchange rate. The company also expects the ex-Primark business (grocery, sugar, agriculture and ingredients) to largely mitigate inflation pressures by year-end through cost savings and pricing (margins expected to be diluted in the first half due to a lag between pricing and cost inflation). Management continues to expect significant progress at full year in adjusted operating profit and adjusted earnings per share for the group, in line with our expectations. We maintain our GBX 2,560 fair value estimate for Associated British Foods. Shares look cheap.