By James Davey
The parent company of Primark - which trades in Ireland as Penneys - has said the discount clothing retailer’s profit margins are set to benefit from the recent weakness of the US dollar versus sterling, given that the fashion chain sources the majority of its goods in dollars from the Far East.
Primark, which trades from about 350 stores in Britain, Ireland, continental Europe and the US, accounts for about half of Associated British Foods’ (ABF) revenue and profit. The division has driven the group’s strong growth over the last decade as its fast fashion at discount prices has struck a chord with young consumers.
ABF said - in a trading update - Primark’s operating margin in the first half of its 2017-18 financial year, the six months up to early March, would be close to that of the previous year, with better buying terms virtually offsetting the adverse effect of the dollar exchange rate.
It forecast an improvement in Primark’s margin in the second half, driven by better buying and the recent weakness of the US dollar.
The pound fell almost 20% versus the dollar in the months after Britain voted to leave the EU in June 2016 but is up 5.4% against the dollar over the last three months and 8.6% over the last six months. Primark would get a bigger benefit from the currency shift in its 2018-19 year, said ABF.
ABF said total first half sales at Primark rose by around 7% at constant currency rates, with like-for-like sales up around 1% in the final 16 weeks of the period.
The group forecast first-half sales growth in all of its other businesses apart from sugar.