NextFin News - Associated British Foods is pushing ahead with a demerger of Primark even as the retailer’s sales softened in the latest half-year, sharpening the case for separating a business that now does not trade like the rest of the group. ABF said Primark sales rose 2% in the 24 weeks to 28 February 2026, but like-for-like sales fell 2.7% overall, with a 5.6% decline in continental Europe offset only partly by a 1.3% rise in the UK and Ireland. The split, announced in April and targeted for completion before the end of 2027, is designed to give Primark and the food businesses separate listed lives and clearer investor followings.
The immediate significance is that Primark is still growing, but much of that growth is coming from store openings and other investment rather than from broad-based demand momentum. ABF said new stores contributed around 4% to Primark’s sales growth in the half, including the first store in Kuwait through franchising. The company also said markdowns were increased to manage inventory levels, which weighed on profitability. Primark’s adjusted operating margin was 10.1% in the period, a reminder that the retailer is still spending to defend traffic in a difficult clothing market.
At the group level, the numbers were weaker than a year earlier. ABF reported revenue of £9.47 billion for the 24 weeks ended 28 February 2026, down 2% on a constant-currency basis, while adjusted operating profit fell 18% to £691 million and adjusted earnings per share dropped 15% to 70.7 pence. The company said it still expected improved group performance in the second half, but also warned that if Primark’s current sales trends continued, full-year adjusted operating profit margin would be about 10%, similar to the first half.
Market Reaction
The demerger has moved from theory to execution, which makes the sales slowdown more important. ABF said on 21 April 2026 that its board had completed an in-depth review and concluded that separating Primark from FoodCo was “the best way to maximise long-term returns for shareholders,” with both businesses intended to list on the London Stock Exchange and ABF shareholders to hold shares in both entities.
For investors, the most important detail is that Primark’s sales mix leaves it exposed to weak regions. UK and Ireland accounted for 45% of Primark’s total sales in the half and rose 2% in total sales, while Europe accounted for 49% and fell 1% in total sales. The US made up 6% of sales and rose 12%, but that is still a small base. The picture is of a business with a strong brand and a broad store footprint, but one whose growth engine remains uneven across geographies.
That matters because the demerger thesis depends on investors being able to value Primark on its own merits rather than as one part of a mixed conglomerate. ABF’s board argues the separation will bring clearer investment propositions and more targeted governance. The market will now test that claim against Primark’s ability to deliver traffic, margin and store productivity without the shelter of the food businesses.
Why The Split Makes Sense
The case for the demerger is strongest when the company itself is strongest. ABF has argued that Primark’s scale now justifies separate ownership and that the food business needs a cleaner market understanding. In a conglomerate, slower or more volatile divisions can obscure the value of the best-known unit, while a retailer with a distinct customer proposition often attracts a different investor base from staples and ingredients businesses.
Michael McLintock, chair of ABF, said:
“The Board has now completed its in-depth review of the structure of ABF and has concluded that a demerger of Primark is the best way to maximise long-term returns for shareholders, reflecting Primark’s scale today and the need for a better understanding of the Food business.”
George Weston, ABF’s chief executive, said the separation would allow each business to pursue its own priorities. That matters because Primark’s investment needs are increasingly retail-specific: digital customer engagement, Click & Collect, pricing perception, product mix and store rollouts across new markets. Those priorities are easier to assess when the business is no longer compared daily with sugar, grocery and ingredients lines.
But the numbers also show why the market is unlikely to give Primark a free pass. In the half, sales growth was driven in part by expansion rather than pure store productivity, with new openings contributing around 4% to sales growth. The UK and Ireland was the only mature region with positive like-for-like sales momentum at 1.3%, while continental Europe fell 5.6%. That supports the logic of a split, but it does not make the retailer look like an unambiguous growth story.
What Still Needs To Go Right
The biggest risk is that the split could expose Primark’s weak spots faster than it unlocks value. The company is selling a simple proposition — fashionable basics at low prices — in markets where consumers are cautious and competition is intense. ABF said the first half was challenging, tied weaker European performance to low consumer confidence and pointed to a need for operational improvements. It also said markdowns rose materially to control inventory, a sign that pricing power remains limited.
That means the next phase will hinge on execution rather than structure. If Primark can lift like-for-like sales in Europe, sustain UK market-share gains and keep US growth on track, the standalone listing could attract investors who prefer a pure-play retailer. If not, the demerger may simply separate a strong brand from the cushion of a diversified parent.
ABF’s guidance suggests the balance is still fragile. The group said Primark’s sales growth in the first half would be in the low single digits and that if current trends continued, full-year adjusted operating profit margin would be about 10%. That is not a collapse. But it is also not the kind of momentum that normally supports a premium standalone rating without clearer evidence of operating leverage.
Management has said the demerger is expected before the end of 2027, subject to approvals and tax clearances. That leaves time for Primark to improve trading and for investors to test the thesis against results rather than corporate logic. The coming quarters will matter less for the paperwork than for the proof.
Primark is being separated because its scale now justifies independence. The harder question is whether independence will make that scale more valuable.
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