Primark cautious on 2023 after 'very strong' Christmas

A Primark store is seen on Oxford Street, in London

By James Davey

LONDON (Reuters) -Clothing retailer Primark reported better-than-expected trading over the Christmas quarter as shoppers returned to stores, parent Associated British Foods said on Tuesday, but cautioned economic headwinds may dent consumer spending in 2023.

After two years of pandemic restrictions, a feature of Christmas 2022 was a return of shoppers to physical stores at the expense of online.

Primark trades from 416 stores across Europe and the United States. It does not trade online but is trialing a Click & Collect offer for children's products in Britain.

The group said Primark's revenue was 3.15 billion pounds ($3.91 billion) in the 16 weeks to Jan. 7, up 15% on a constant currency basis as it benefited from "very strong" trading in the run-up to Christmas, with record sales in the week to Christmas Day.

Last week, official UK data showed inflation-pinched consumers cut their shopping by the most in December in at least 25 years, but some retailers exceeded expectations, including those aimed at the value end of the market.

AB Foods said consumer spending had proven more resilient in the quarter than anticipated at the start of its financial year.

Finance chief John Bason highlighted particularly strong Christmas sales of cold weather clothing, tailored items and beauty and cosmetics.

"To date, Primark trading has been good in all our markets and was ahead of expectation," the group said.

"Early trading in this new calendar year has been encouraging but macro-economic headwinds remain and may weigh on consumer spending in the months ahead."

Last September, Primark said it had decided to limit further price increases in 2022-23 beyond those already planned, seeking to maintain its value credentials among consumers.

AB Foods, which also owns major sugar, grocery, agriculture and ingredients businesses, said its total revenue was 6.7 billion pounds over the 16 weeks, up 16%.

The group maintained its guidance for "significant growth" in sales in 2022-23 but with adjusted operating profit lower than the 1.44 billion pounds made in 2021-22.

It said it continued to encounter significant cost pressures but inflation had become less volatile and recently some commodity costs had declined.

AB Foods' shares have fallen 7% over the last year but are up 16% over the last month.

They were down 1.5% in morning trading, with sentiment dented by the outlook for its sugar business.

The group said it now expected full year profit at its AB Sugar division to be broadly in line with the previous year as a result of a much-reduced UK sugar crop. It had previously forecast profit to be "well ahead" of 2021-22.

Sales in the group's grocery business, which includes Twinings tea, Jordans cereals and Ovaltine drinks, rose 9% to 1.39 billion pounds over the 16 weeks, but inflation in input costs was continuing to run ahead of pricing to recover margins.

($1 = 0.8063 pounds)

(Reporting by James Davey; editing by Kate Holton , Jason Neely and Vin Shahrestani)