Parent Company Explores Spin-Off of Primark Amid Growth Struggles

Penneys, known internationally as Primark, is facing a potential separation from its parent company, Associated British Foods (ABF), as it grapples with stagnant growth and increasing market pressures. ABF, which has owned Primark since its inception in 1969, is considering a strategic move to “spin out” the retail chain into its own independent entity.

ABF recently informed investors that it is reviewing its corporate structure, which may lead to Primark’s separation from the food-focused conglomerate. The company stated, “The Board of ABF has been conducting a review of the group structure. The outcome may lead to the Board deciding to undertake a separation of the Primark and Food businesses.” This decision comes as Primark, despite being a significant contributor to ABF’s revenue, shows signs of vulnerability in its growth trajectory.

In the financial year 2025, ABF reported total group sales of £19.5 billion (€22.5 billion), with Primark accounting for £9.5 billion, approximately half of the total revenue. Primark also generated £1.1 billion in operating profits, representing around two-thirds of ABF’s overall profitability. Despite these impressive figures, ABF’s management believes that separating Primark could enhance the value of both businesses.

Analysts have suggested that Primark’s position within ABF has created a disconnect in market valuation, resulting in what is termed a “conglomerate discount.” One analyst noted that ABF was valued at an 11% discount compared to its peers, indicating that investors might see greater value in the two businesses if they operate independently.

Primark has experienced significant growth over the past decade, doubling its revenue and increasing its store count to almost 500. Nevertheless, the company reported only a 1% increase in revenue for 2025, raising concerns about its future growth potential. In a recent warning, ABF indicated that profits for 2026 would likely fall below those of 2025, a trend exacerbated by a 2.7% decline in sales at Primark during the first 16 weeks of the year.

While Primark’s U.S. operations saw a 4% increase in sales, performance across continental Europe and Ireland was less robust, with revenue dropping nearly 6%. Analysts speculate that rising consumer costs and intensified competition from online fast-fashion retailers could be contributing factors to this decline.

Davy Stockbrokers has expressed concerns regarding Primark’s growth model, stating, “[Primark’s] growth model continues to generate limited traction.” The firm anticipates ongoing challenges for Primark, suggesting that the current pressures may not be temporary but rather indicative of deeper structural issues.

ABF is also facing broader challenges, with its share price falling approximately 12% following the recent profit warning. Currently trading at about half of its peak value of £36 per share in 2015, the company is under pressure to improve investor confidence. The consideration of spinning off Primark aligns with a push for higher valuations in a market where ABF’s stock has not reflected the retail chain’s strong performance.

Despite these corporate restructuring discussions, it is unlikely that day-to-day operations at Penneys stores will change significantly in the short term. However, the focus on Primark’s growth and the potential for a significant overhaul in its corporate structure may lead to increased scrutiny and changes in strategy moving forward.

As ABF navigates these complexities, the future of Primark remains uncertain. Stakeholders will be watching closely to see how this situation evolves and whether the separation will indeed lead to greater financial success for both entities.