TG: Primark's UK growth accelerates ahead of US launch
Gypsy tops, skinny jeans and playsuits helped Primark shrug off concerns about a tricky summer for fashion chains to step up sales growth in the UK as it prepares to open its first US store this week.
Analysts said sales at Primark’s established UK stores rose by about 3% in the three months to 12 September, a pick up on the 1% to 2% growth seen in the previous three months.
“Although the weather hasn’t been great, our spring summer ranges came through in the final quarter,” said John Bason, finance director or Primark’s parent group Associated British Foods. “Primark has a very strong presence in the UK but it is continuing to take market share.”
Bason insisted that sales growth in the UK was not driven by discounting. Although Primark’s profits will be down on last year, Bason said this was because of higher discounting last autumn and the cool spring. He added that profit margins were only down over the summer in comparison to last year’s hot season which meant Primark was able to employ exceptionally low levels of discounting.
Despite strong trading at Primark, shares in ABF, which also owns food brands such as Kingsmill and produces sugar in the EU and China, dipped 2% on Monday to ÂŁ30 as it confirmed in a trading update that profits for the year would be hit by falling European sugar prices and currency issues.
Bason said sugar prices in the EU had now stabilised and it expected to see some recovery in the year ahead.
But some analysts said they would also be downgrading their expectations for next year’s profits by as much as 3% because of currency problems which could hit profit margins by £100m. That’s because, for example, the relative strength of the dollar, which Primark uses to pay suppliers in Asia, versus the pound will hit margins on autumn/winter clothing.
ABF said the strength of the pound and the weakness of the euro as well as some Asian currencies would also mean a ÂŁ30m hit to profits translated into sterling in the year to 12 September and more than that next year.
Primark’s sales rose 13% for the full year as it opened 9% more space including new outlets in France, Germany and the Netherlands. This year, the group will open 1.5m sq ft of new space compared with just under 1m sq ft last year.
Nearly a third of that new space will be in the US where Primark plans seven stores in the next year. The first will open in Boston’s Downtown Crossing on Thursday followed by the King of Prussia mall in Philadelphia in November.
Bason said Primark felt well prepared for Thursday: “We have got a good location and a great building but the proof of the pudding will be in the eating. It will be good to see how the US consumer reacts.”
