Primark owner ABF declares £500m share buyback scheme
ABF announces £500m share buyback plan after shoppers flock back to Primark stores and profits soar
- Primark sales in the UK and Republic of Ireland both grew 48%
- There was strong demand for Primark’s night and loungewear products
- ABF increased its final dividend to 43.7 pence per share – worth £236 million for investors
Associated British Foods has announced a £500m share buyback program following an exceptionally strong recovery in Primark store trading.
Annual sales at the company’s fast fashion subsidiary rose by more than £2bn from the previous year to £7.7bn in the 12 months to September 17, as eased Covid-related restrictions sparked a significant uptick in resulted in customer numbers.
Primark’s night and loungewear products, especially new prints and thermals, as well as collaborations with reality TV stars such as Love Island’s Kem Cetinay, were in high demand.
Popular goods: Primark saw high demand for its nightwear and loungewear, especially new prints, thermals and the ‘Snuddie’, a hooded and sleeved blanket
On an adjusted basis, Primark’s sales in the United Kingdom and the Republic of Ireland grew by 48 percent.
Sales were up 42 percent in Continental Europe, although they are still below pre-pandemic levels in the region.
This helped Primark’s adjusted operating profit at constant exchange rates more than double to £756 million, which in turn increased ABF’s total annual profit by 45 percent to £720 million.
The company has announced a £500m share buyback program along with an increase in the final dividend to 43.7p per share – worth £236m to investors.
George Weston, ABF’s chief executive, said the company delivered “strong revenue and earnings growth this year in a clear demonstration of the benefits of our diversification, brand strength and commitment to disciplined financing and investment.”
He added: “The performance was achieved despite the pandemic-induced disruption followed by high and volatile input cost inflation.”
Rising energy prices, partly due to Russia’s large-scale invasion of Ukraine, an appreciating US dollar and rising employee wages have contributed to much higher costs for the company.
It has passed on some additional costs to consumers, particularly in the food sector, or offset it through measures such as hedging gas prices or reducing energy consumption.
But given the effect that the current pressure on the cost of living has on disposable income, ABF has decided not to raise prices in Primark stores above the already planned prices until next summer.
“We believe this decision is in Primark’s best interest,” ABF told investors, adding that it would help keep prices affordable and increase market share in the longer term.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, thinks the move could work in ABF’s favour, as price increases would mean Primark “losing almost all of its bargaining power” and driving core customers away.
She added: “Towards the Christmas season, it is very likely that customers will go down and shop in places like Primark, where they may have previously been more of a mid-market consumer.
“This should ultimately benefit Primark, but it may not necessarily be enough to offset the loss of existing customers who are reluctant to spend frivolous.”
Associated British Foods Shares were up 4.1 percent to £14.87 at noon, although their value has fallen by about 28 percent so far this year.
Hilton Food Group also reported today that it expected its annual operating profit to be lower than forecasts due to weaker economic conditions and problems within its seafood business.
The company said its seafood division was impacted by “unprecedented inflation costs,” expected to last through early 2023.