Associated British Foods (ABF) delivered an earnings upgrade, but investors responded with a sharp selloff, signaling concerns about the quality of those earnings. The stock closed Friday at 1,843.5 pence, down 8.7% from the 2,020p close before Thursday's trading update. The initial reaction saw shares drop 7.9%, followed by a further 0.9% decline on Friday.
The market's skepticism persisted despite ABF stating that full-year adjusted earnings per share would exceed its previous expectations. The core issue: an EPS beat is insufficient when Primark's established stores are contracting and the Food businesses face a wider loss range next year. Group adjusted operating profit remains only "broadly in line" with prior guidance, placing the burden on November's full-year results to clarify how much of the per-share improvement stems from durable operational performance versus one-off factors.
Primark's New Stores Mask Underlying Decline
Primark expects fourth-quarter sales to rise about 2%, but this growth is heavily reliant on new store openings and franchises, which contribute roughly five percentage points of growth. Like-for-like sales, however, are projected to fall about 3%. The full-year picture mirrors this trend: total sales up 2%, same-store sales down 2.6%, and adjusted operating margin near 10%.
Continental Europe is the primary pressure point, representing 47% of Primark's sales—slightly more than the UK and Ireland combined. Fourth-quarter like-for-like sales in Europe are expected to decline 4.3%, with total European sales down 1%. In contrast, the UK and Ireland see like-for-like growth of 0.4% and total sales up 2%.
The United States offers a brighter spot with sales up about 11% in the quarter, supported by seven new store openings, bringing the total to 47. However, the U.S. accounts for only 6% of Primark's sales, and ABF itself characterized underlying trading there as challenging. Rapid expansion in a small market cannot yet offset the deterioration in its largest continental market.
Home Delivery Announcement Fails to Lift Sentiment
The announcement of a new home-delivery initiative did little to rescue the shares. Primark has acquired a highly automated fulfilment facility in Sheffield and says its Click & Collect experience now creates an opportunity for profitable delivery growth in Great Britain. While this strategy could broaden Primark's addressable market, it also introduces additional fulfilment, returns, and digital-acquisition costs to a model built around physical stores. Investors are still awaiting launch details and unit economics.
Food Businesses Offer Limited Offset
The diversified Food portfolio provides some support. Ingredients sales are growing about 10% in the quarter, with full-year adjusted operating profit on plan. Grocery sales are rising at a mid-single-digit rate, and the Hovis integration offers future cost synergies. However, two figures explain why investors looked past these positives. Grocery profit for 2026 is now expected to be slightly below previous forecasts, partly due to hot weather reducing Twinings tea demand and an Ovaltine distributor change. More critically, Sugar is projected to lose toward the high end of its £25 million–£60 million adjusted operating-loss range this year, followed by a significantly wider £70 million–£170 million loss in 2027.
Even the best-case scenario for next year's Sugar loss is worse than the worst case for this year. The £100 million width of the 2027 range also signals substantial uncertainty around gas costs, African production, weather, and currencies. Hovis adds another near-term complication: ABF expects one year of consolidated Hovis losses in Grocery before synergies and profit accretion materialize.
Demerger Raises the Bar
ABF still plans to separate Primark from its Food operations in December 2027. This could unlock value if both businesses emerge with clear standalone growth stories. However, it could also expose weaknesses that the conglomerate structure currently absorbs. Primark's initial 2027 margin outlook of about 10% explicitly excludes demerger dis-synergy costs, while FoodCo must contend with Sugar's losses and Hovis integration.
The strongest counterargument to the selloff is that management has preserved Primark's 10% margin, improved current-year EPS, gained UK market share, and seen an encouraging volume response after lowering prices across hundreds of autumn and winter items. Home delivery could also address a longstanding digital gap. If these actions turn continental Europe's like-for-like sales positive without eroding margin, Friday's valuation reset may prove harsh.
For now, the evidence is incomplete. The shares fell as much as 11% on Thursday before closing down 7.9%, and they did not rebound on Friday. The next hard checkpoint is November 3, when ABF publishes full-year results. Investors need a bridge from operating profit to the EPS upgrade, a tighter view of Sugar's 2027 loss, and proof that Primark's European price investments are lifting comparable-store volumes—not merely shifting the sales mix.
