Primark powers on as Europe, UK strengthen, but dollar costs will hurt future margins

Primark’s owner Associated British Foods delivered a 36% rise in H1 profit on Wednesday and was upbeat about the rest of the year as the Primark budget fashion business continued to power ahead.


Primark


ABF said the six months to March 4 saw operating profit, before certain exceptional items, hitting £652 million, up from £486 million a year ago. That 36% rise was boosted to the tune of £51 million by currency exchange effects. But it was also helped by Primark sales that were up in double-digits and rose more than the company had forecast back in February.

"Primark delivered a substantial increase in selling space which, together with its strong consumer offering, contributed to a further increase in our share of the total clothing market,” CEO George Weston said.

Primark’s retail revenue rose to £3.222 billion, a 21% rise at actual exchange rates and a still-strong 11% rise currency-neutral. Operating profit was up 3% to £323 million.

Last year was a 53-week year for Primark and, as a result, this financial year started one week later than last. So on a comparable week basis, total currency-neutral retail sales for the period were 12% ahead, and 22% ahead at actual exchange rates. The increase in average retail selling space in the first half, compared with the same period last year, was 12%.

Primark performed well in the UK and delivered sales there 7% ahead of last year with a strong increase in its share of the total clothing market.  This was driven by 2% growth in comparable sales and an increase in selling space. 

In continental Europe, sales and market shares increased strongly. In the Netherlands, where sales densities are high and some stores are over-trading, the company added 32% more retail selling space over the last year, including a flagship store in Amsterdam. Consequently, total sales in the Netherlands increased by 18% but comp sales declined.


Primark


Overall, European comp sales for the group were level with last year but were 1% ahead excluding the Netherlands.
The company also continued to develop and evolve its US store offering and said it is encouraged by its most recent store, Staten Island, which opened in March “and is performing very well.”

The firm gave no news on current sales but said further growth in operating profit is expected in the second half. However, this will not be at the rate achieved in H1 as currency exchange benefits lessen and the full effect of sterling weakness against the US dollar on Primark's purchases will result in a greater margin decline.

And for the longer-term future, the company said it has been looking at the potential consequences of Brexit. While it believes its diverse operations will have a protective effect, its dedicated team is “working to seize the opportunities and mitigate any risks,” it said. It added: “We are actively engaging with a number of government departments to ensure that these opportunities and risks are recognised.”

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