Primark is set to embark on its largest store expansion round in 10 years as it strengthens its presence in mainland Europe and the US on the back of a strong first half to its current financial year. Parent group Associated British Foods yesterday reported better-than- expected interim figures, showing group revenues of just under £7.3bn (€8.7bn) and operating profits of £640m — up 20% and 36% — for the six months to the first week of March.
Driving that growth for the diversified food, agriculture, ingredients, sugar and retail group was its retail business; namely Primark, which trades here as Penneys. Primark’s operating profits fell 2%, year-on-year, in the first half to £323m, but its revenues were up by 11% at just over £3.2bn.
In its core market of the UK, Primark performed well with 7% year-on-year sales growth.
Sixteen shops were opened in Ireland (Liffey Valley, Dublin), the Netherlands, the UK, Germany, Italy, France, Spain and the US in the first half — helping to boost sales and market share strongly, especially in continental Europe.
Associated British Foods didn’t break down performance for Penneys in Ireland. However, it had previously noted, in January, “strongly positive” like-for-like sales in Ireland had boosted Primark’s performance in its first quarter.
The company said early trading from the 16 outlets opened in the first half is ahead of expectations. While the strength of the dollar has hit operating margins by lifting costs of clothing made in Asia and priced in dollars, Primark is gaining market share in the UK, it said.
“While the backdrop for UK retail in particular of course remains uncertain, the first-half results and outlook should offer some comfort,” analysts at Barclays said in a note.
Associated British Foods increased its interim dividend by 10% and said it expects to see good profit growth for its full year.
Primark is planning its biggest expansion of store space since 2006 as its low prices draw in shoppers without the help of an online offering. The retailer aims to open 29 stores in its current financial year, mainly outside the UK, Associated British Foods said.
Primark is taking its budget fashion stores deeper into Europe and the US, where it first entered in 2015.
The latest expansion plan comes after the business tripled its floorspace to about 13m sq ft over the last decade. Unlike most clothing retailers, Primark relies entirely on old-fashioned bricks-and-mortar stores and has shunned an e-commerce offering.
“There’s a very viable strategy without trading online,” ABF chief executive George Weston said. “The best value is to be found on the high street, not online.”
ABF’s share price jumped by as much as 4.8% yesterday before retreating in later trading. All of its divisions showed revenue growth in the first half. The Primark element of the results also showed that the company is dealing with pressure on UK clothing chains brought on by the fall in the pound since the UK’s vote to leave the EU last June, which raises the cost of imported clothing; as well as a rise in online shopping and a shift in consumer spending toward experiences.
Shares of rival Next have slumped since 2015 and its latest annual profit fell for the first time in eight years. n Additional reporting Bloomberg
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