ABF reports 23% Primark sales growth in U.S., offsetting weaker Europe

Associated British Foods (ABF) reported a mixed second half to its fiscal year, with Primark's U.S. sales notably climbing 23%, offsetting softer continental European trading and contributing to an expected overall 1% sales growth for the year despite a 2% like-for-like decline. Strategically, ABF is expanding Primark globally, including new U.S. stores, while navigating significant challenges in its sugar division, which recorded a £40 million operating loss and will incur a £200 million charge from the Vivergo bioethanol plant closure. The company also moved to acquire Hovis to strengthen its bakery business, with management acknowledging a challenging consumer and geopolitical environment but anticipating benefits from recent actions and investments into 2026.

Analysis

Associated British Foods (ABF) presents a highly divergent performance in its second-half update, reflecting significant strategic restructuring amidst a challenging macroeconomic environment. The Primark division demonstrates a clear geographical split, with robust 23% sales growth in the United States driven by successful store expansion, contrasting sharply with weaker trading in continental Europe, where key markets like France and Italy are projected to decline by 4%. While UK sales remained resilient, growing 1% and gaining market share, the overall Primark like-for-like sales are expected to fall 2% in the second half, tempering the positive US narrative. Beyond retail, ABF is undertaking significant portfolio changes. The sugar division faces a substantial 10% sales decline and an expected £40 million adjusted operating loss, compounded by the strategic closure of the Vivergo bioethanol plant which will incur a charge of approximately £200 million. In contrast, the company is moving to strengthen its grocery segment by acquiring Hovis Group, aiming to create a more sustainable UK bakeries business to offset weakness in its Allied Bakeries unit. Other divisions show mixed results, with currency devaluation in Argentina impacting Ingredients and profit at the Agriculture unit falling significantly. Management has framed these actions as necessary steps to navigate current volatility, with benefits from the restructuring expected to materialize in the 2026 financial year.

Key Decisions for Investors

• Investors should closely monitor the progress of Primark's US expansion, as its 23% growth represents a critical offset to persistent softness in continental Europe and will be a key determinant of future group performance.
• The financial impact of the ongoing restructuring must be carefully weighed, balancing the immediate £200 million charge from the Vivergo plant closure against the potential long-term benefits of exiting an unprofitable business and strengthening the grocery portfolio through the Hovis acquisition.
• Given the explicit guidance for benefits to materialize in fiscal year 2026, investors should assess their investment horizon, as near-term earnings will be pressured by restructuring costs, inflationary headwinds, and continued consumer weakness in key European markets.