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The Associated British Foods (LSE: ABF) share price has slumped around 11% in early trading today (8 January), after the FTSE 100 group released a disappointing Christmas trading update.
While individual company issues are clearly at play, I see this as more than just a stock-specific wobble. For me, it raises an uncomfortable question: is the struggling consumer starting to pose a wider threat to markets as we head into 2026?
A tough festive period
The update covered the 16 weeks to 3 January – a crucial trading window for retailers. Primark, which accounts for roughly half of group revenues, delivered a mixed performance.
In the UK, sales rose around 3%, with like-for-like growth of 1.7% and some market share gains. Management pointed to stronger womenswear performance and continued investment in price perception and Click & Collect.
Elsewhere, performance deteriorated. Like-for-like sales in continental Europe fell 5.7%, while volatile US trading dragged overall Primark growth below expectations, prompting higher markdowns and weaker profitability.
Looking ahead, management now expects Primark sales growth in the first half of 2026 to be in the low single digits, with operating margins around 10%. That’s hardly inspiring for a business that many investors hoped would thrive during a cost-of-living crisis.
Food businesses feel the pinch too
What concerns me more is that the consumer squeeze isn’t confined to retail. ABF’s Food divisions also experienced mixed trading, particularly in the US, where demand weakened more sharply than expected.
In both Grocery and Ingredients, the company now expects adjusted operating profit to come in moderately below last year’s level. That’s a notable downgrade, especially given the defensive reputation many food brands enjoy. It suggests households are becoming more selective even when it comes to everyday staples.
At group level, the picture is uninspiring. Revenue for the period fell 1% at constant currency, and management now expects group adjusted operating profit and earnings per share to be lower year on year.
A warning signal for 2026?
Some retailers, including Tesco and Marks & Spencer, reported strong Christmas trading. However, I don’t see this as evidence of a healthy consumer. Instead, it highlights how polarised spending has become, with shoppers prioritising essentials and trusted brands, while discretionary spend remains under pressure.
I’ve long viewed ABF as something of a bellwether for the consumer economy. It straddles value fashion and everyday food – areas that should, in theory, be resilient when times are tough. The fact that both sides of the business are under pressure is telling.
Consumers may still be spending, but they are clearly spending less and becoming increasingly cautious. That’s not just a challenge for retailers as it has implications for earnings growth across large swathes of the market.
My view as a shareholder
I own ABF shares and intend to hold them. It remains a well-run, conservatively-managed business with strong brands and long-term potential. However, despite the steep fall in the share price, I’m not tempted to buy more.
The update reinforces my belief that the consumer is stretched and that visibility for 2026 remains poor. Until there are clearer signs of a meaningful recovery in demand, I’m happy to sit on my hands – and keep a close eye on what ABF might be telling us about the wider market
