Sales at AB Foods' Primark helped by lower fuel prices

LONDON, United Kingdom - Sales growth at the Primark discount fashion chain has accelerated over the last eight weeks as falling fuel prices boost shoppers' disposable income, Associated British Foods said on Monday.

The group reiterated its annual earnings expectations with growth at Primark and progress at its grocery, ingredients and agriculture businesses helping to offset continued weakness in its sugar operation.

ABF said Primark's half year to Feb. 28 sales were expected to rise by 16 percent on a constant currency basis, up from 15 percent reported for the first 16 weeks of the period.

Cumulative sales at stores open over a year, having been negative over the first 16 weeks, were now level with the previous year, following a rise of about 4 percent over the last eight weeks.

Finance director John Bason said Primark's improved performance reflected an 11 percent increase in retail selling space, very high sales densities in new stores, and the recent sharp fall in petrol prices.

"Normal, ordinary families, the people who shop in Primark, suddenly every week if they fill their (car) tank with petrol have got 20 pounds ($30) more to spend," he told Reuters.

"Whether it all comes to Primark is a moot point, but it's got to help."

Shares in AB Foods, 55 percent owned by the Weston family and up 8 percent over the last six months, were up 0.7 percent at 3,059 pence at 0936 GMT, valuing the business at about 24 billion pounds ($37 billion).

"ABF deserves a premium rating due to the medium- to long-term potential from the outstanding Primark business, plus a credible long-term growth strategy," said Shore Capital analyst Darren Shirley who has a "hold" rating on the stock.

The group said it still expected a marginal decline in adjusted earnings per share (EPS) for its 2014-15 year from the 104.1 pence made in 2013-14, hurt by currency trends.

As previously indicated, it said adjusted operating profit for the first half was expected to be lower than last year's 497 million pounds. However, adjusted EPS was forecast to be in line with last year, largely benefiting from a lower tax rate.

ABF forecast its grocery division would deliver a first half operating profit in line with last year, while ingredients and agriculture would both show progress.

However, as previously indicated, profitability at AB Sugar will be substantially lower, hurt by the fall in EU sugar prices and weakness in the world sugar price.

"In terms of the decline in the sugar price, the worst is definitely over," said Bason.

£1 = $1.53