Primark owner AB Foods lifts profit outlook, sending shares up 10%

By James Davey

LONDON (Reuters) -Associated British Foods forecast "significant growth" in full-year profit after reporting a 39% jump in the first half driven by margin recovery in both its Primark fashion retail business and its food operations.

The group, whose shares soared 10% in morning trading, had previously forecast "meaningful progress" in full-year profit.

The improved outlook reflected an expectation that Primark would continue to perform well in the second half, driven by new store openings and modest levels of like-for-like sales growth as it focuses on driving volumes.

It forecast a moderate improvement in Primark's adjusted operating margin in the second half compared to the first half's 11.3% - up from 8.3% a year before - reflecting an improvement in the cost of the products it buys and lower shipping costs.

Rival H&M said last month it aims to reach an operating profit margin of 10% this year.

AB Foods did however caution that the consumer environment "remains soft".

The group also expects its grocery business, which includes products such as Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, to continue to perform well in the second half.

It forecast a "substantial improvement" in profitability at its sugar business, as it benefits from more typical production at British Sugar and reduced losses in Vivergo.

AB Foods said adjusted operating profit, its preferred profit measure, was 951 million pounds ($1.17 billion) in the six months to March 2, on a 2% climb in revenue to 9.73 billion pounds.

Primark's first-half revenue rose 7.5% to 4.5 billion pounds, with like-for-like sales up 2.1%. Grocery revenue rose 1%, and its margin increased to 10.8%.

"We are now benefiting from the restoration of some normality in our markets and in our supply chains," CEO George Weston said.

"Group profit margins are recovering accordingly to more normal levels."

The group said it was monitoring the situation in the Red Sea but did not expect any significant disruption to its supply chain.

Primark plans to roll out its click & collect service to all UK stores after a successful trial.

Weston said the move did not mean the group will pursue home delivery, which unlike its rivals it does not offer.

"We're not a retailer that does home delivery," he said.

($1 = 0.8107 pounds)

(Reporting by James Davey; Editing by Edwina Gibbs and Jan Harvey)