Primark cuts sales outlook after weak Christmas quarter

By James Davey

LONDON (Reuters) -Associated British Foods cut annual sales guidance for its Primark budget fashion retailer after reporting weak trading in its main UK market in the Christmas quarter that it said reflected pressure on lower-income shoppers.

The group said Primark was now targeting "low single digit" sales growth in 2025, having previously forecast "mid single digit" growth, but kept its forecast for an adjusted operating margin in line with the 11.7% achieved in 2023/24.

Shares in AB Foods were down 3% on Thursday, extending losses over the last year to 18%.

The group said Primark's total sales grew 2% over the 16 weeks to Jan. 4, its fiscal first quarter, helped by new store openings.

However, on a like-for-like basis sales fell 1.9%, reflecting a 6.0% dip in the UK and Ireland - a market that accounts for about 45% of its sales. While it lost market share in the UK, sales in Europe and the U.S. were stronger.

The group said growth in UK and Ireland like-for-like sales over the key Christmas trading weeks was more than offset by weaker autumn trading in "a challenging retail environment".

Official data published on Friday showed overall UK retail sales fell unexpectedly in December, showing elements of a cost of living crisis remain and raising the risk of an economic contraction in the fourth quarter.

Finance director Eoin Tonge said Primark's UK performance was consistent with that of other retailers who rely on lower-income shoppers.

"It would appear to us that there are more challenges at the lower-income side of things," he told Reuters in an interview.

Earlier this month, other retailers skewed towards lower-income shoppers - sportswear group JD Sports, general merchandise business Argos, baker Greggs and discounter Poundland - all reported subdued Christmas trading.

In contrast, clothing retailers Next and Marks & Spencer were more upbeat. However, Next did highlight relative weakness in stores compared with online sales.

Unlike its rivals, Primark does not offer online delivery. It does, however, offer a click and collect service.

"This isn't a story about the Primark model (being) challenged, it's a story about the consumer being challenged," said Tonge.

AB Foods maintained its guidance for its grocery, sugar, agriculture and ingredients businesses.

Revenue in grocery, which includes Twinings tea, Jordans cereals and Ovaltine drinks, grew 1% in the quarter. Sugar sales declined 2%.

Tonge expects analysts' full-year consensus profit forecast for the group to fall about 2%.

(Reporting by James Davey; Editing by Paul Sandle, Tomasz Janowski and Jan Harvey)