Can Primark-owner Associated British Foods continue to beat the squeeze?

The diversified conglomerate has shown resilience in the face of the cost-of-living crisis, but its customers are feeling the pinch

FTSE 100 foods-to-fashion conglomerate Associated British Foods (ABF) updates on trading on 26 June, where investors will look for comment on the state of the consumer and (hopefully abating) cost pressures across its retail and food businesses.

Back in April, the conglomerate behind the Primark cut-price fashion chain and grocery brands ranging from Twinings and Ovaltine to Patak’s, Kingsmill and Jordans reported a respectable first half performance. Group sales for the six months to 4 March 2023 were up 21% to £9.56 billion thanks to strong demand in both the food and retail divisions.

Food sales fattened up 23% to £5.33 billion, with the ingredients business performing ‘exceptionally’ well, according to the business, while Primark sales were up 19% to £4.23 billion driven by higher footfall, higher prices and higher volumes.

However, investors were spooked by CEO George Weston’s caution over the risks of an economic downturn and the effect that could have on consumer spending. Household budgets continue to face real pressures as a result of high inflation, increased interest rates and general economic uncertainty, putting the squeeze on the disposable incomes of the typical Primark customer.

While Weston and co expect Primark to deliver like-for-like sales growth in the second half, that growth is expected to moderate versus the first-half period.

On 19 June, clothing and home retailer Next (NXT) reported better than expected trading over the previous seven weeks, saying the warmer weather made a big difference to its performance. Associated British Foods shareholders will be hoping that Primark also experienced the same trend. [JC]

Nike expected to show earnings weakness at fourth quarter results

Supply chain costs and excess stock expected to be in focus

Sportswear giant Nike (NKE:NYSE) is scheduled to report its fourth-quarter earnings on 29 June and investors will be looking for evidence that problems reported earlier in the year are being ironed out.

Nike’s margins might have been hit by trying to get rid of excess stock by offering steeper discounts towards the end of the fiscal year.

Although Nike reported a 14% increase in the group revenues in
the third quarter, the firm was knocked back by unfavourable changes in foreign exchange rates and rising costs of moving goods around the world.

In the company’s third quarter results conference call, chief financial officer Matthew Friend said: ‘We expect fiscal 2023 gross margin to decline approximately 250 basis points at the low end of our previous guidance range. This reflects ongoing and accelerated actions to reduce inventory by year-end, elevated freight and logistics expenses, including higher supply chain network costs in North America, and 100 basis points of foreign exchange headwinds.’

The consensus forecast is for $12.57 billion of revenue in the fourth quarter, up from $12.39 billion in the previous three months. Pre-tax profit is expected to slip to $1.25 billion against $1.48 a quarter earlier. Earnings per share is estimated at   $0.67 versus $0.79 in Q3. [SG]

UK UPDATES OVER THE NEXT 7 DAYS

FULL-YEAR RESULTS

June 26:  Sysgroup, Prospex Energy

June 27: CML Microsystems, Telecom Plus

June 28: SDCL Energy Efficiency Income Trust

June 29: Baltic Classifieds, Moonpig, De La Rue

TRADING ANNOUNCEMENTS

June 26:  Associated British Foods. Fresnillo

June 27: Forward Partners Group

June 29: Time Finance

HALF-YEAR RESULTS

June 28: Schroder European Real Estate Investment Trust, Abrdn Private Equity Opportunities Trust, Harmony Energy Income Trust

US UPDATES OVER THE NEXT 7 DAYS

QUARTERLY RESULTS

June 23: CarMax

June 26: Jeffries Financial, Ennis

June 27: Walgreens Boots, Roivant Sciences, Progress, Novagold

June 28: Micron, General Mills, National Beverage, Unifirst, Worthington Industries, Schnitzer, Virtus Equity

June 29: Nike, Paychex, McCormick & Co, Acuity Brands, Simply Good Foods, Lindsay, Smart Global

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