Primark’s improved fast-fashion appeal can power a valuation revival. The UK purveyor of cheap coats and shoes, owned by $20 billion conglomerate Associated British Foods (ABF.L), reckons it can deliver an adjusted operating profit margin of over 10% this year, a stark increase from the 8.2% it managed in the 12 months to Sept. 16. That’s chiefly because freight and material costs have started to fall. But also thanks to an added 1 million square feet of new retail space. Meanwhile a big push into the U.S. market could further help drive sales.
Primark’s success is key to its parent, which also owns food brands including Twinings, Jordans and Ovaltine. Assuming sales at the retailer were to grow 7% annually, just half of the 15% jump of last year, they would hit 9.6 billion pounds. If margins were to rise to 10%, that would add 235 million pounds to the conglomerate’s operating profit, which stood at 1.5 billion pounds last year, Breakingviews calculations show. Before a 5% jump in Associated British Foods’ share price on Tuesday, the company traded on 12.8 times its 2024 earnings, a steep drop from the near 20 times average over the past 10 years, according to LSEG data. If Primark’s input costs keep falling and it successfully expands in the U.S., it can narrow this gap. (By Aimee Donnellan)
Follow @Breakingviews on X
Capital Calls – More concise insights on global finance:
Starbucks pays little mind to unions’ pay push read more
Paramount summits a precarious streaming peak read more
Maersk’s woes signal slow-motion industry crash read more
Macquarie sends shareholders a sell signal read more
Aston Martin recovery path gets ever narrower
