Associated British Foods (ABF.L), the consumer giant that owns cheap clothing outlet Primark as well as food brands Ovaltine, Ryvita, and Twinings tea, revealed that sugar is hurting its bottomline.
In its first-half earnings on Wednesday, AB Foods’ results showed that its sugar operation nearly wiped out profit but its overall numbers were buoyed up by growth in cheap fashion. In the 24 weeks to 2 March, overall revenue rose just 1% to £7.53bn ($9.7bn).
Adjusted operating profit in sugar fell from £106m from the same period last year to just £1m. Meanwhile, Primark’s profit jumped 25% in the first half of the year.
“This is a robust set of results. Profit at AB Sugar was substantially reduced but, from this period, we expect our sugar profitability to improve,” said George Weston, CEO of AB Foods.
“The strong underlying growth in Grocery profits demonstrates good momentum. Primark delivered excellent profit growth, driven by further development of our customer experience and selling space expansion.”
AB Foods’ trading update falls neatly in line with the sea change we’re seeing in retail.
Cheap fashion is still a boon for retailers across the globe. Today, for example, UK online fashion retailer Boohoo (BOO.L), famed for its cheap and trendy clothing, recorded a massive surge in sales and pre-tax profits. For the year ending 28 February 2019, revenue rose by almost 50% while pre-tax profits jumped by nearly 40% to £60m ($77.5m).
But the backlash on sugar is pulling down revenue as consumers turn away from the soluble carbohydrate and governments start implementing policies and taxes to curb uptake.
AB Foods’ shares slumped in early trading.