The owner of Primark and food brands including Twinings has upgraded its profit forecast for this year as revenues jumped thanks to inflation-fuelled price increases and as shoppers bought summer clothes.
Associated British Foods (AFB), which also owns Ovaltine as well as a sugar business, said group sales rose by 16% to £4.7bn in the three months to 27 May. Sales at Primark were up 13% to nearly £2bn.
The cut-price clothing retailer said sales growth at Primark was “supported by higher average selling prices”, as retailers continued to push through price rises amid increases in production and supply chain costs.
“As well as seasonal clothing and accessories, sales in health and beauty products were particularly strong,” the company said.
ABF said it expected full-year adjusted operating profits to be “moderately ahead” of last year, having previously guided they would be “broadly in line” with the £1.4bn made in the previous year.
ABF added that its food business continued to perform strongly with sales in its grocery business up by 13% to £1.05bn, while its ingredients operation rose 10% to £547m.
“We have seen strong, constant currency sales growth in grocery and ingredients largely driven by the necessary pricing actions taken earlier in the year to offset input cost increases,” the company said.
Last week, the Bank of England increased interest rates by a half point to 5% as part of its efforts to tackle high inflation.
Prices remain high and are still rising fast, adding to pressure on struggling households. Between April and May, food and drink inflation slowed from 19% to 18.3%, still among the fastest rates in decades.
ABF said its sugar business, which reported a 51% year-on-year rise in quarterly sales to £665m, was “progressing well” in the UK after it was forced to secure alternative sources of supply due to a production shortfall.
Primark, ABF’s biggest division accounting for more than 40% of revenues, is benefiting from its budget positioning and demand for new clothes as Britons plan for summer holidays.
“If the consumer is beginning to have doubts about spending, such reticence is not coming Primark’s way,” said Richard Hunter, the head of markets at Interactive Investor.
“Of course, any further deterioration in the economic backdrop could weigh further on consumer sentiment. Even so, one thing which has become apparent over recent months is the British insistence on taking holidays, as evidenced by improving airline and travel numbers, which is often accompanied by a revamp of the wardrobe,” he added.
Primark also continues to roll out its improved website format that enables shoppers to check stock availability in stores, although customers cannot buy items through the site, into markets including Italy, Spain, the US and France.
The retailer, which has pledged not to raise its prices again until at least November, is expected to receive a significant sales boost from a collaboration with Mattel for the release of the much-hyped Barbie movie starring Hollywood A-listers Margot Robbie and Ryan Gosling.
Primark’s buoyant outlook mirrors that of fellow high street retailer Next.
Last week, Next, which has about 500 stores and is considered a barometer for consumer spending, issued a surprise profit upgrade, citing an “overperformance” in recent sales.
The clothing and homeware retailer said the recent warmer weather, particularly coming after low temperatures and rain in April, and workers feeling flush thanks to pay rises, had prompted shoppers to update their wardrobes with summer clothing.
While Britons are increasingly feeling the pinch of the cost of living crisis, with inflation running at 8.7%, many consumers seem determined to splurge this summer.
In May, Ryanair said it expected to better its near-record 2022 profit of €1.4bn (£1.2bn) this year, fuelled by a summer boom in which the low-cost airline will carry a record number of passengers on its largest-ever schedule.