Associated British Foods (LON:ABF) brought forward a first-quarter trading update for its 2026 financial year, citing weaker-than-expected performance at Primark. The update covered the 16-week period to January 3 and provided management’s “best estimates” as the group finalized Q1 numbers for individual businesses and the overall group.
Management said the decision to accelerate the release was aimed at updating investors “as soon as possible” in light of Primark’s trading. ABF also said it now expects full-year group adjusted operating profit and adjusted EPS to come in below last year.
Primark sales up modestly as performance diverged by market
In the UK, Primark delivered total sales growth of 3%, like-for-like growth of 1.7%, and gained market share despite what management described as a difficult retail environment and a disappointing Christmas period for clothing retail. Management also noted mild weather did not help seasonal demand.
ABF highlighted a set of UK initiatives intended to improve Primark’s customer proposition, including:
- Improving price perceptions
- Strengthening the product offer
- Increasing the use of digital marketing
- Driving growth in click-and-collect
- Refurbishing the store estate
The company said early results have been positive, particularly in womenswear, and described further opportunities ahead.
In continental Europe, ABF said the consumer environment remained tough and did not meaningfully improve over Christmas. Management said the value proposition is a focus, but that the UK-style initiatives had not yet been fully rolled out in Europe, though implementation is now underway. Based on the UK response, ABF said it expects initiatives to improve European performance in coming months.
In the US, ABF described a volatile retail environment that affected sentiment and footfall. Management said store openings were executed well and that 11 new stores opened in Q1, with new space contributing around 4 percentage points to total Primark sales growth. ABF also pointed to the opening of its first franchise store in Kuwait, which it said has been trading “very well,” and added that a Dubai opening is expected at the end of March.
Primark outlook: low-single-digit H1 growth, higher markdowns weigh on profit
ABF said Primark’s sales growth in the period was below prior expectations. The company now expects Primark sales growth in the first half of fiscal 2026 to be in the low single digits.
To manage inventory levels in a difficult trading environment, ABF said it “significantly increased markdowns,” which hurt profitability. In Q&A, management said the shift from its earlier margin view to an adjusted operating profit margin around 10% (if current sales trends persist into the second half) was “really mostly” driven by markdowns, with deleverage also a factor but partially mitigated.
Management emphasized it was not providing an upside margin scenario and reiterated that the priority is driving like-for-like sales and top-line growth rather than targeting a specific margin level. ABF also noted that the first half of fiscal 2025 benefited from a non-recurring $20 million profit item.
Europe details: market-by-market commentary and digital rollout plans
On Europe, Primark executives cited broad weakness, with some markets more challenged than others. They described France and Italy as “a bit challenging,” Germany as “not great,” and Spain as “okay,” though Spain also experienced a weak Christmas.
Executives discussed several drivers and responses:
- Competition: Management said Europe’s pressure was not purely an online competition story. They pointed to bricks-and-mortar competition in some categories (such as kidswear and home) and said any step-up in competition has occurred over time rather than being limited to the recent period.
- Brand awareness and scale: Management said brand awareness is not a problem in Spain, but can be in France where Primark is not “hugely scale.”
- Price perception: Executives said the company needs to re-establish a reputation for being among the sharpest on price, and is rolling out “major lines” into Europe starting now.
- Digital initiatives: ABF said it intends to bring more digital capabilities into Europe over time. Executives said click-and-collect will take time to implement across countries, but described it as part of the longer-term journey. In the UK, management said having click-and-collect in all stores has helped support digital initiatives.
On UK pricing, ABF said it has not lowered like-for-like prices overall, but has taken more selective action on key “major lines.” Management said improvements in price perception have been evident for “a matter of months,” citing market share gains and brand tracker improvement.
Food businesses: softer US trends prompt a more cautious outlook
ABF reported a mixed performance in its food operations during Q1 and said the group is seeing worsening consumer weakness in the US relative to expectations discussed in November.
The company said the impact has been “more acute than anticipated” in US cooking oils and bakery ingredients, prompting a more cautious outlook. As a result, ABF now expects both the grocery and ingredients segments to deliver full-year adjusted operating profit moderately below last year. In grocery, ABF said phasing will make the impact more significant in the first half of the year.
Executives attributed much of the weakness to a subdued US consumer, noting softness particularly among its customer base within the Hispanic population, and said foodservice activity is down. Management said it is monitoring the impact of GLP-1 medications but characterized it as “a bit too early” to call as a driver.
Within grocery outside the US, ABF said innovation is contributing to performance, highlighting that Twinings performed “very well” in Q1 with volume growth, and that additional initiatives are planned for the second half.
Other items: Hovis review progresses; group structure review unchanged
ABF said its UK bakeries business continues to focus on securing regulatory clearance for its acquisition of Hovis. Management said it is making good progress and has moved into phase two of the UK Competition and Markets Authority (CMA) review.
For the sugar and agriculture businesses, ABF said there was no change to guidance given in November. Management also discussed profit phasing in food, including a potential technical impact in Malawi sugar related to expected currency devaluation and hyperinflation accounting, which the company said would skew profitability toward the second half as price recovery follows.
Separately, ABF reiterated that its review of group structure remains ongoing and that it plans to provide an update in April. Executives said the trading update did not change the core rationale for the review.
About Associated British Foods (LON:ABF)
Associated British Foods is a diversified international food, ingredients and retail group with sales of £13.9bn, 128,000 employees and operations in 53 countries across Europe, Africa, the Americas, Asia and Australia.
Our purpose is to provide safe, nutritious, affordable food, and clothing that is great value for money. With the breadth of our business, our brands and global reach, ABF aims to consistently deliver value to its stakeholders.
Our business is split into five segments: Grocery; Sugar; Agriculture; Ingredients; and Retail.
