Associated British Foods (ABF) said it expects sales and adjusted operating profit to be ahead of the pre-Covid levels that were achieved in H1 of FY20 for the 24 weeks to 5 March 2022, driven by an expected 60% increase in sales at Primark.
Like-for-like sales improved compared to Q4 FY21, and its operating profit margin has reportedly recovered and is now expected to be some 11% in the first half of the year, bringing the half year margin close to the pre-Covid levels.
Over the last two years, the group has opened 27 new stores, increasing its retail selling space by 8%. However, total sales for Primark are expected to be 4% lower than pre-pandemic levels in the same period two years ago.
It said the effect of inflation on raw materials and the supply chain in Primark during H1 has been mitigated by a reduction in store operating costs and overheads and a “favourable” US dollar exchange rate.
Meanwhile, ABF said cash flow in the period is expected to be improved year-on-year when Primark store closures resulted in an estimated cash outflow of some £650m. This year the cash flow also benefited from the sale of autumn/winter inventory brought forward from the prior year.
Additionally, net cash before lease liabilities is reportedly expected to be £1.5bn at the half year, compared to £705m at the first half last year.
ABF said customer footfall is picking up in most markets, particularly the UK and Ireland, after the disruption caused by Omicron in the middle of the period.
It added sales in its UK stores are “well ahead” of last year as like-for-like sales have reportedly improved and are expected to be 9% below two years ago, and total sales are expected to be 8% below two years ago. Stores in retail parks and town centres continue to outperform destination city centre stores with like-for-like sales in retail parks ahead of pre-Covid levels.
Additionally, ABF has reported that luggage and swimwear have performed well in recent weeks, giving the group confidence as it looks ahead to the holiday season after two years of travel restrictions.
ABF said it expects some reduction in the operating profit margin from that achieved in the first half reflecting further inflationary pressures. Additionally, the pressure of disruption to the supply chain experienced in the autumn has continued to alleviate despite some delays in dispatch and slightly longer lead times.