Primark smartens up and UK stocks squeeze out small gains

Associated British Foods

“Even though full-year revenue was slightly below market forecasts, there is a lot to like about Associated British Foods’ results,” says Russ Mould, Investment Director at AJ Bell.

“It benefits from having diverse activities and the non-retail operations have developed a reputation for being solid and dependable businesses, providing a strong backbone for the group with Primark the more exciting component upfront.

“As always, the attention is centred upon Primark and the outlook for the brand is certainly improving. With lockdown and forced store closures now hopefully a thing of the past, Primark can concentrate once again on its expansion plans and the US is going to see a lot more stores in the years to come.

“Primark stores used to have a reputation for being a bit of a chaotic jumble sale, with items strewn everywhere. Now they feel a bit smarter, perhaps with the management having used the downtime during lockdown to come up with a plan to improve the in-store experience.

“The focus now is to improve operating margins, reduce costs, have a clear sustainability strategy and roll out a better online service – which is essentially the same message from other retailers like Boohoo and ASOS.

“The only difference is that Primark is still not going down the online transactional route. Instead, the new website will just be a showcase for the products it sells; you’ll need to go into a store to buy them. It has long argued that the economics of its business, in selling cheap clothes, doesn’t support the costs associated with running a full online logistics and delivery operation.

“It continues to roll out a broader range of products which is helping to diversify sales so that it isn’t overly-reliant on selling high volumes of t-shirts, underwear and dresses. Cookware, ceramics, rugs and outdoor items like boots and waterproof jackets increasingly feature in its stores, widening the appeal of Primark as a brand.

“There doesn’t seem to be too much of a worry about supply chain problems as it says stock availability is generally good in the run-up to Christmas, which is something that will also help the brand stand out from the crowd at a time when so many other companies are struggling to keep shelves filled with items.

“Primark is one of the few brands which still draws in the crowds on the high street which says something about how successful the business has been.”

Markets

“Every little helps as one supermarket says, and that certainly applies to UK markets on Tuesday with the main indices squeezing out very small gains.

“The FTSE 100 nudged up 0.1% to 7,308 thanks to good news from Associated British Foods and Rolls-Royce as well as investors regaining interest in mining stocks.

“The FTSE 250 mid-cap index fared better, rising 0.3% to 23,600 thanks to a mixture of gains from consumer-facing businesses and industrial stocks.

“While the UK has lagged the US in terms of performance, it has still been a good year for investors in large and mid-cap UK stocks, helped by the market being cheap on a relative basis compared to many other geographies and a flurry of takeover activity.

“The FTSE 100 has generated a 16.8% total return so far this year which includes dividends. In a historical context that is very good but still lagging the S&P 500 which has returned 25%.”

These articles are for information purposes only and are not a personal recommendation or advice.