Primark's parent company, Associated British Foods (ABF), is set to reveal another boost in sales when it updates investors next week.
However, challenges such as delayed shipments, a drop in UK high street footfall and wage increases from April could impact the firm's recent success. The company, which also has large grocery and agriculture operations, has seen its shares rise by about a quarter over the past year.
This was backed by positive updates in September and November, where the consumer giant highlighted strong profits on both occasions. Investors will be hoping for more good news when ABF reveals its figures for the latest quarter in a trading update on Tuesday January 23.
Much of the recent optimism surrounding the firm has been fuelled by improved earnings at Primark, the group's high street fashion chain. On Tuesday, the company is expected to announce another quarter of growth at Primark over the crucial Christmas period.
Analysts Anubhav Malhotra and Wayne Brown from Liberum have predicted a "solid start" to ABF's financial year and suggested the group could deliver "stronger than expected" profits at Primark, as well as its sugar business. Over the past year, Primark has seen profitability improve due to easing inflationary pressures, with commodity and energy costs settling down.
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However, the ongoing economic and political uncertainty could pose a challenge to profit growth. "The very confident tone set out in September and November is challenged by a confirmed 10% hike in UK living wages, incremental costs from Red Sea disruption and peers calling a peak in sugar prices," said Jefferies analyst James Grzinic.
Other retailers like Next and Ikea have warned that delays in deliveries due to attacks in the Red Sea could lead to inflation if they continue. Investors will be keen to see how ABF plans to limit the impact of these disruptions on its supply chain costs or product availability.
ABF's costs are also likely to increase due to higher labour costs, with the minimum wage set to rise by about 10% in April. Shareholders will be interested to see how this affects the company's profit outlook. Another factor to consider is consumer sentiment, with official data from the Office for National Statistics showing a drop in retail sales volumes in December due to low high street footfall.
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