Primark’s summer price cuts are under the spotlight this week as Associated British Foods (ABF) prepares to update investors on its fourth-quarter trading performance. The question on every investor’s mind is whether slashing prices on hundreds of fashion items has been enough to get shoppers spending again.
ABF is the parent company of Primark, its only retail brand, alongside large food, sugar and agriculture operations. Primark generates the highest revenues of any of ABF’s business units, which makes its performance the centrepiece of every trading update.
What the Primark summer price cuts were designed to do
In July, Primark announced a round of reductions across hundreds of fashion lines, saying the move ‘reaffirms its place as the home of great value fashion’. The timing was deliberate: the cost of living has been edging higher for UK households, and Primark was looking to remind shoppers that it remains one of the most affordable places to buy clothing on the high street.
Whether that message has landed will be the central question when ABF publishes its fourth-quarter update. Russ Mould and Danni Hewson, analysts for AJ Bell, put it plainly: ‘After a challenging year, investors will be hoping for a sprinkling of good news driven by a boost in late summer clothing sales and the approval of the Hovis acquisition. Whether Primark’s recent UK price reductions have translated into positive like-for-like sales growth will be a key area of focus.’
The sales picture: new stores carrying the weight
The detailed picture emerging from ABF’s own trading update makes the arithmetic clear. In Q4, Primark’s overall sales are expected to grow by around 2%, but that headline figure conceals a split: new store openings and the franchise model are contributing around 5% to growth, while like-for-like sales (a measure of performance in existing stores, which strips out the effect of new openings) are down around 3%.
In plain terms, Primark is growing because it is opening new shops, not because existing ones are busier. The ABF trading update also noted that Click & Collect sales continued to grow well, a sign that the company’s effort to blend its store estate with a degree of online convenience is gaining traction with shoppers.
Aarin Chiekrie, equity analyst for Hargreaves Lansdown, described the expected overall financial performance as ‘relatively underwhelming’. He said the Primark business is forecast to deliver around 2% sales growth in the second half, ‘despite a challenging retail environment, particularly for low-income consumers across the UK and Europe’, with like-for-like declines in existing stores expected to be offset by momentum in the United States and growth from new store openings.
On profitability, Primark’s adjusted operating margin is projected at about 10% for the year, according to Ad-hoc-news. That figure will matter to investors weighing up what the business might be worth as a standalone company.
A spin-off on the horizon and trouble in the sugar division
The trading update arrives against a backdrop of two significant strategic developments. First, ABF has confirmed plans to separate Primark from its food operations and list it on the FTSE 100 as a standalone entity by the end of 2027. Mould and Hewson at AJ Bell described the planned spin-off as a ‘monumental shift in strategy’ for ABF’s leadership, adding that investors will be watching closely to see whether the listing fetches a strong valuation or trades at a discount to expectations.
Second, ABF warned in July that it expects to report lower profits for the full financial year compared to the previous one. Higher gas costs linked to the Middle East conflict have hit its sugar plants, and ABF is now expecting to report an adjusted operating loss for the sugar division. ABF owns sugar brand Silver Spoon, and its grocery portfolio includes Kingsmill, Twinings, Jordans, Patak’s and, following a recent acquisition that is currently under scrutiny, Hovis. The Competition and Markets Authority (CMA) has launched an investigation into ABF’s takeover of Hovis.
With the Hovis acquisition still to clear regulatory hurdles and the sugar division under pressure, the health of Primark’s trading carries more weight than usual. ABF’s fourth-quarter update, due Thursday, will give the first detailed public reading of whether the Primark summer price cuts moved the needle with shoppers before the back-to-school and early autumn period began.
