Nov 29, 2017
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Morgan Stanley downgrades Primark owner on US store concerns

Nov 29, 2017

Morgan Stanley has downgraded Associated British Foods on the back of an expansion slowdown at Primark’s US operations. It has downgraded the stock from ‘overweight’ to ‘equal weight’, although its share price target has been raised.


The investment bank believes that information in the latest ABF results statement suggests that the US is proving a harder market to crack than the hugely successful Anglo-Irish company might have expected.

Earlier this month Fashion Network reported that Primark continued to see stellar results globally but there was relatively little information about the US. The company said that during the two years since the opening of its first US store it had “learned much about trading in the US” and was constantly “fine-tuning our ranges and store size to recognise the different demands of US shoppers”. 

It had added new space to some existing stores but had also reduced the size of others. It still plans to open its ninth US store in Brooklyn, New York in the summer. 

But Morgan Stanley is discounting the prospects for further fast US expansion, a Proactive Investors report said.

However, as the raised share price target shows, Morgan Stanley isn’t suggesting Primark is struggling and still sees it as crucial to ABF’s growth. 

“We have not given up on Primark eventually succeeding in the US, but now believe that it will be at least another 12-18 months before any further expansion is announced, and with Primark currently delivering c7% [like-for-like] sales in the UK, and sales densities in Europe already extraordinarily high, we find it hard to see where incremental good news will come from in the coming months,” it said.

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