Primark: The Georgia Store, the Demerger, and the Discount on ABF

Primark is opening its 47th U.S. store at Sugarloaf Mills in Lawrenceville, Georgia, on September 8. A second Georgia location in Augusta follows shortly after. It reads like routine chain expansion — the kind of local business column that tells you what to buy on a Saturday afternoon. But for the stock that owns Primark, Associated British Foods (ABF, LSE: ABF; ADR: ASBFY on Nasdaq), the Georgia store is a data point in a much bigger and more consequential story: the business that makes half the company's profit is expanding fastest in the one market where ABF's other businesses are bleeding.

That tension — between a fast-growing retail engine and a struggling food conglomerate — is why ABF shares are down roughly 14% over the past year and trading at a forward P/E of about 15.5, well below the company's own 10-year median of around 19. The discount is real. The question is whether it reflects a genuine mispricing or the market correctly reading the business beneath the headline.

Primark is not a small part of ABF. It operates 486 stores across 19 markets, generates approximately £9.5 billion in annual revenue, and contributes more than half of the group's adjusted operating profit. The rest of ABF is a sprawling collection of grocery brands — Ovaltine, Ryvita, Twinings — plus sugar, ingredients, and agriculture. Together, those food businesses are the profit drag.

Here is what the numbers show. In the first half of fiscal 2026 (the 24 weeks to late February), group revenue was essentially flat at roughly £9.5 billion. But adjusted operating profit fell 18%, to £691 million, and adjusted earnings per share dropped 15% to 70.7 pence. The profit decline was driven almost entirely by the food side. The grocery segment saw a 20% profit decline due to weak U.S. consumer demand for cooking oils. Sugar posted an adjusted operating loss of £27 million in H1 alone, with management now guiding for a full-year adjusted loss between £25 million and £60 million.

Meanwhile, Primark grew total sales 2% in H1 — modest, but remember the context. Europe, which accounts for nearly half of Primark's sales, saw like-for-like sales fall 5.6% as consumer confidence deteriorated. The U.K., the other major market, grew like-for-like sales 1.3%, gaining market share even as the broader U.K. clothing market shrank. That kind of relative strength in a downturn is exactly what a value retailer should do.

The U.S. is the accelerant. Primark U.S. sales grew 16% in the third quarter of fiscal 2026, according to the July trading update. The business now accounts for 6% of Primark's total sales, up from about 5% a year ago. It opened its Manhattan flagship on 34th Street in May 2026, drawing roughly 3,000 customers on opening day. Management's stated goal has been to reach 60 U.S. stores by the end of 2026. At 47 stores with the Georgia openings, that target is still aggressive but within reach if leases convert on schedule.

Why does the U.S. matter so much? Because Primark has found a structural opening. The company does not offer online delivery. That sounds like a weakness, but it becomes an advantage when U.S. tariff policy changes hurt its competitors. The Trump administration's move to eliminate the "de minimis" duty exemption — which let shipments under $800 from China enter duty-free — directly targets Shein and Temu. Primark's CEO George Weston publicly said the company could benefit from the policy shift, reasoning that price-sensitive shoppers currently buying online from ultra-cheap Chinese retailers may return to physical stores. Primark's physical-only model, combined with its rock-bottom pricing, positions it to capture that shifted demand.

Now for the corporate structure. In April 2026, ABF announced it would demerge Primark from its food businesses, with the separation expected before the end of 2027. The plan: ABF shareholders will receive shares in both listed entities — Primark as a standalone company and "FoodCo" holding the food brands, sugar, ingredients, and agriculture. The board argued the two businesses share no synergy and that markets would value each more clearly on its own.

Demergers like this are meant to unlock value, but they don't create it. The market currently values ABF at about $19.6 billion, or roughly £14.5 billion. That valuation reflects the whole conglomerate — the profit from Primark averaged against the losses from sugar and the softness in food. A standalone Primark would likely trade at a higher multiple because its growth and cash profile stand on its own. A standalone FoodCo would likely trade lower because the market would see the sugar drag and U.S. consumer weakness without Primark masking it. The question for current ABF holders is whether the current price already reflects that arithmetic or whether there's still unpriced value in the split.

The margin picture is worth examining. Primark's adjusted operating profit margin is approximately 10%, management says. That's not spectacular for a retailer, but it's durable. Primark's model is built on volume, not markup: massive stores, lean operations, no online delivery costs, and deep supplier relationships that keep unit costs low. The 10% margin has held through a period that included Middle East conflict-related cost pressures on freight and energy, a challenging U.K. consumer environment, and aggressive new-store investment. In Q3, new stores contributed 5 percentage points to Primark's revenue growth. The trade-off is that like-for-like sales fell 2.2% across the business. Growth is coming from openings, not existing stores. That's not a crisis — it's the natural pattern of a chain pushing into white space — but it means organic demand is soft and needs monitoring.

The next few months will provide a clearer picture. ABF has a quarterly trading update scheduled for September 10 — three days after the Georgia store opens. That update will cover the second-half fiscal year and should show whether the spring/summer recovery hinted at in the July update is sustaining. More importantly, it will signal how management views the U.S. momentum and whether the 60-store goal remains on track. The annual results are due November 3, which may bring more detail on the demerger timeline.

For the investor deciding what to do with ABF right now, here is the honest breakdown. The stock is cheap relative to its own history. The dividend yield of roughly 2.3% on a 47% payout ratio is sustainable. The balance sheet is manageable, with leverage at 1.2x. But the cheapness is not free. Like-for-like sales are negative. The food businesses are losing momentum in the U.S., and sugar is a drag with no clear recovery horizon — management expects the European sugar market to remain in surplus through 2027. The demerger is a structural change, not a profit catalyst, and it introduces execution risk over the next 15 months.

Primark's U.S. expansion is the one clear growth engine. The 16% U.S. sales growth in Q3 is meaningful, and the tariff dynamic genuinely favors brick-and-mortar value retailers. If Primark hits its 60-store target and the U.S. business continues to grow into 7% or 8% of total Primark sales, that adds real optionality. But the U.S. is still a small part of the whole, and Primark itself is only half of ABF's profit.

The discount exists for a reason. The question for a holder or watcher is whether Primark's strength and the eventual demerger are enough to justify owning the food drag today. That's not an answer the Georgia store provides — it's an answer the September 10 trading update, the November results, and the demerger timeline will begin to resolve.