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Investing.com -- Associated British Foods (LON:ABF) shares fell 10% on Wednesday after the UK-headquartered company reported full-year trading results showing softer-than-expected Primark sales, weaker profitability in grocery and agriculture, and ongoing challenges in sugar, partly offset by stronger performance in its ingredients business.
Chief executive George Weston said, “I’m pleased with how the Group has performed in the second half of our financial year in what continues to be a challenging environment, characterised by consumer caution, geopolitical uncertainty and inflation.”
Primark’s overall sales growth for the full year is expected to be around 1%, with like-for-like sales in the second half projected to fall about 2% from last year, including a 2.4% decline in the third quarter and a projected 2% decline in the fourth quarter, versus Visible Alpha consensus of 1% decline for H2.
Weston added, “Primark delivered improved trading in the UK and strong sales growth in the US, while trading on the continent was softer in a weaker consumer environment.”
Primark opened four U.S. stores in the second half, including its first location in Tennessee, with U.S. sales expected to grow 23%.
In the U.K. and Ireland, sales are forecast to rise about 1%, with clothing market share increasing to 6.8% from 6.6% a year earlier. Excluding store estate changes, like-for-like sales are projected to be nearly flat.
In continental Europe, H2 sales are projected to grow 2% in Spain and Portugal, decline 4% in France and Italy, increase 9% in Central and Eastern Europe, and fall 2% in Northern Europe, including Germany, the Netherlands, Belgium, and Austria.
Primark added 15 new stores across Europe and the U.S. in H2 and completed 22 refits. One store was closed and another downsized in the Netherlands. Preparations are under way for the first stores in the Middle East, with one set to open in Kuwait in October and two in Dubai in early 2026.
On the food side, grocery sales in H2 are expected to be in line with last year, though adjusted operating profit is slightly below previous expectations due to one-off restructuring costs.
Twinings reported volume-led growth, Ovaltine benefited from higher prices and product expansion, and Allied Bakeries posted lower sales and an operating loss. Weston said the Hovis acquisition, subject to regulatory approval, will “create a financially sustainable UK bakeries business.”
Ingredients sales are broadly in line with last year, supported by AB Mauri’s yeast and bakery products and specialty ingredients. Adjusted operating profit is expected slightly ahead of prior forecasts.
Sugar sales are expected to decline 10%, with an adjusted operating loss including Vivergo of up to £40 million.
“Following extensive negotiations, the UK Government decided not to provide the solution required for Vivergo to operate on a consistently profitable basis and we therefore announced its closure,” the company said.
Charges related to Vivergo and Spanish restructuring are projected at around £200 million, including £50 million in cash costs this year and next.
Agriculture sales are expected to rise 1% in H2, though adjusted operating profit will fall significantly due to lower contributions from the Frontier joint venture and one-off costs.
RBC Capital Markets analysts said Primark remains a “solid space rollout story in Europe and the U.S.” and continues to lead as a value player in the U.K., while grocery and sugar challenges will weigh on FY25 profitability.
Weston added, “This has also been a busy period strategically, including the decision to close the Vivergo bioethanol plant, the restructuring of our Spanish sugar business, and an agreement for Allied Bakeries to acquire Hovis. Against a backdrop of continued volatility in 2026, we will start to see the benefit from our recent actions and continued investment.”