Associated British Foods plc (ASBFY) cautioned Monday that margins in its discount clothing retailer Primark will be pressured this year owing to the sharp decline in sterling on global foreign exchange markets but kept its full year earnings guidance in place.
The group said it is making "excellent progress" in its full year group earnings, which will be announced on April 19, and that it expects stronger cash flow in the first half of this year compared to the last. Sales at Primark are expected to be 11% ahead of last year, the company said, when measured on a constant currency basis, and 21% ahead on an actual exchange rate basis.
ABF shares rose around 1% in early London trading to change hands at 2,636 pence Monday, taking the three month gain to around 1.1% compared to a 2.55% advance for the FTSE 350 Food Producers Index.
However, the group warned that the 18% decline that sterling has suffered against the U.S. dollar since the country voted to leave the European Union on June 23 would hit Primark margins in the year ahead.
"We expect a stronger cash flow, before acquisitions and disposals, in the first half of this year compared to last year," the statement said. "The full effect of sterling weakness against the US dollar on Primark's purchases will result in a greater margin decline in the second half because our currency hedges were at more advantageous exchange rates in the first half."
