By Geoffrey Smith
Investing.com -- Shares in Associated British Foods (LON:ABF) fell on Tuesday after the group warned that it expects profits to fall this year as the economy weakens.
The forecast overshadowed a strong Christmas season for the group's Primark stores, which posted an 18% gain in sales (15% adjusted for foreign exchange swings) in the 16 weeks through January 7th, profiting from a first COVID-free shopping season in three years.
Primark added 700,000 square feet of retail selling space last year and expects to add another 1 million in 2023. Of the 17 stores it plans to open, seven are in the U.S., while the rest are in continental Europe. It said all of its new stores are "performing well."
It also added that trading so far this year had been "encouraging" but warned that "macro-economic headwinds remain and may weigh on consumer spending in the months ahead."
Inflation, too, is expected to add a continued drag on results. While ABF said it expects "significant growth in sales" this year, adjusted operating profit and adjusted earnings per share will fall short of last year's.
Input cost inflation has weighed particularly heavily on the group's British Sugar operations, which had to absorb sharp rises in energy costs last year, as well as adverse weather.
ABF slashed its estimate for sugar production in the 2022/23 marketing year to 0.74M tons from a previous estimate of 0.9M. It also noted that its Vivergo bioethanol plant in Hull lost money in the period "due to volatility in its energy and other input costs and bioethanol prices."
By 04:00 ET (09:00 GMT), ABF stock was down 1% in London, having hit an 11-month high on Monday, underperforming the FTSE 100 index which was down 0.4%.