Must read: Frasers Group and AB Foods previews

Frasers Group full year - Thurs 4 Dec

Nearer term, the current clouds which are overhanging the retail sector has weighed on performance at Frasers Group (LSE:FRAS). Consumer sentiment is patchy at best, retail sales are under pressure and the general economic backdrop has lessened consumer propensity to spend.

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In addition, the group also revealed that it would incur at least £50 million in additional costs stemming from last year’s Budget, although it had engineered £127 million of underlying cost savings overall, largely due to warehouse automation and acquisitions.

However, Frasers said at its full-year report in July that it was now seeing "positive momentum" in the new financial year with "more encouraging" sales trends. It remains to be seen whether the group is still on track with its guidance at that time, when it said that it expected adjusted pre-tax profit in the range of £550 million and £600 million for this year, compared to £560.2 million last year.

On the face of it, there should be reasons for optimism as the group has highlighted. Frasers is geographically diverse and previously announced new partnerships in Australia and Africa. This was in addition to investments in and partnerships with global names such as Nike, Adidas and Hugo Boss, although these tie-ups have tended to weigh on Frasers in the past given a difficult luxury backdrop.

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Even so, the group’s “Elevation Strategy”, which aims to enhance its appeal through more digitally integrated and flattering displays of its products is also gaining traction, especially given some of its tie-ups with those household names.

Other factors are at play, with the broader debate around consumers switching to online and away from traditional physical stores continues and remains to be solved. Several Board changes announced in September put pressure on stability and continuity, although the November announcement of the acquisition of Braehead Shopping Centre in Glasgow, Scotland’s largest retail and leisure destination, could prove to be a positive development.

The shares have staged a modest recovery and have risen by 22% so far this year, although last December’s profit warning and relegation from the FTSE100 added to pressure which leaves the shares down by 3% over the last 12 months.

Associated British Foods AGM – Fri 5 Dec

Being an AGM trading statement, the ensuing investor questions will put Primark at the top of the agenda for any strategic updates from Associated British Foods (LSE:ABF).

At last month’s full-year results, the group announced a strategic review which could lead to the separation of the Primark and Food businesses.

This could make sense, given that the other parts of the business are rather more in keeping with the company name, such as Grocery, Ingredients and Sugar. At the same time, the rationale for such a move is that management consider that the Food business has long been misunderstood by the market, despite its portfolio, expertise and potential.

Primark is reaching a size where it perhaps requires laser focus to capitalise on its own growth prospects, particularly overseas where the brand is gaining some real traction.

The consideration of the split is understandable, with Primark being a jewel in the crown for the group and currently responsible for 49% of group revenues. That being said, the sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next (LSE:NXT). Nonetheless, AB Foods is estimating that the continued rollout of stores will further boost sales growth.

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Meanwhile, and although the US business is still in its fledgling stage, accounting for 5% of group revenues, the potential for growth is evident as the group focuses on investment and marketing to lift brand awareness in what could be a major opportunity. The full-year numbers revealed that sales continued to accelerate at a brisk pace, with a rise of 20%, with the group now having 33 stores in place and another 18 in the pipeline as the group continues to build on its growing momentum in what is a huge addressable market.

In what could be a busy trading update, the other parts of the group will also be under scrutiny, especially the Sugar business which has been a recent thorn in the side. Overall, the shares have risen by 2% so far this year but remain down by 5% over the last 12 months. Despite having recovered by some 68% since their multi-year low in October 2022, the price is some 40% below the previous highs recorded ten years ago.