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Investing.com — Shares in Associated British Foods PLC (LON:ABF) fell sharply on Thursday after the U.K. retailer warned that it expects total income to decline in its next financial year as inflation headwinds face its key Primark business.
In a trading statement that was originally due out next week, the company predicted that group-wide adjusted operating profit and adjusted earnings per share will be lower in its next 52-week period despite an estimated uptick in sales.
Driving this guidance is a darkening outlook for Primark. Income margin next year at the unit is seen declining compared to the level of 8.0% forecast for the second half of its current year, which ends on September 17. AB Foods said costs at the division are being affected by “significant market volatility,” including soaring energy prices and a strengthening U.S. dollar.
The recent surge in inflation for households and businesses is anticipated to weigh on consumer spending at Primark as well, AB Foods flagged, although top line sales at the fast fashion chain are still estimated to rise.
The company added that it is taking steps to mitigate input cost pressures at Primark but will not unveil further upticks in item prices beyond increases already being implemented in the autumn and winter of this year.
“Looking further ahead, we remain focused on returning the business to an operating profit margin of some 10% as commodity prices moderate and consumer confidence improves,” AB Foods said in a statement.
Meanwhile, AB Foods reiterated its outlook for rising profit and earnings per share in its current year, with a rebound in customer demand following the lifting of COVID-19 restrictions expected to offset cash outflows stemming in part from supply chain difficulties.
The company will deliver its latest full-year results on November 8.
