Primark owner ABF warns of weak sales as tax fears and European turmoil dent consumer confidence

Associated British Foods, the owner of Primark, warned Wednesday that weak consumer demand driven by tax fears in the U.K. and political uncertainty across Europe is weighing on sales, sending its shares sharply lower.

Chief Executive George Weston said the group is seeing "very negative consumer sentiment" in many parts of continental Europe and expressed concern about the impact of the U.K. Budget, scheduled for Nov. 26, on household spending and business costs. ABF shares fell 13.2 percent on the news.

ABF said Primark's like-for-like sales are expected to have declined about 2 percent in the six months to Sept. 13, reflecting what Weston described as "consumer caution." The group said sales in the U.K. and Ireland were up roughly 1 percent over the period, helped by warm weather and strong womenswear ranges, including a popular pair of £22 palazzo jeans.

Weston warned that proposed business-rates reforms by the Labour government could penalize larger stores that act as anchors for high streets. "If you want to support the High Street, it makes no sense to me that you would penalize the people that do the biggest part of driving footfall to those high streets," he said. Retailers have argued that increases in rates for bigger premises — a change intended to level the playing field between bricks-and-mortar businesses and online rivals — could force some large shops to close and drain foot traffic from town centres.

Political turmoil in France and Spain has compounded pressure on shoppers, Weston added, saying disposable incomes are "very squeezed" across "large swathes of continental Europe." He also flagged a potential rise in unemployment and said the Budget's timing could weigh on already weak Christmas spending.

The warning from ABF came as a contrast to results from Inditex, the world's largest fashion retailer and owner of Zara, which reported stronger recent trading. Inditex said sales rose 9 percent between Aug. 1 and Sept. 8 compared with a year earlier, and grew 1.6 percent to £15.9 billion in the six months to July 31. Inditex's shares rose 6.5 percent on the trading update.

"We have again achieved a solid performance, with satisfactory sales in a complex market environment, keeping strong levels of profitability," Inditex Chief Executive Óscar García Maceiras said in a statement.

Investors and analysts pointed to differences in positioning and price points between the two retailers. Russ Mould, investment director at AJ Bell, said Inditex benefits from higher price points that can give its products more margin for error if they need to "sparkle" to persuade cautious shoppers, while Primark's lower-cost model is more exposed to sharp shifts in discretionary spending.

ABF's portfolio extends beyond fashion, including household brands such as Twinings and Ovaltine. Nonetheless, Primark is a major driver of the group's retail performance, and the company warned that broader economic and policy developments could dampen consumer activity.

Retailers have urged clarity from government on the planned rates reforms and on other policies that could affect jobs and consumer confidence ahead of the critical holiday trading period. With consumers already showing signs of restraint, executives said they were monitoring labour-market trends, inflation, and the knock-on effects of political developments in key markets.

Market reaction underlined investor concerns about near-term earnings risks for value-focused retailers. ABF's sharp share decline reflected immediate investor unease over the outlook for shopping demand and the potential cost impact of policy changes, while Inditex's gains signalled confidence in its product cycle and margins.

ABF said it will continue to assess trading conditions as the autumn and holiday season progress, and reiterated its focus on cost management and inventory discipline. Retail analysts said further clarity on the Budget and the proposed business-rates changes will be closely watched for indications of how government policy might reshape the retail landscape in the months ahead.