Cheap chic boosts earnings for Penneys’ owner

Penneys-owner Associated British Foods is set for a big jump in full-year earnings as shoppers snapped up bargains at its discount fashion chain and shrugged off the distractions of the Olympic Games and depressed economic growth in western Europe.

The retailing and food group said it expects annual earnings will be “substantially” ahead as Primark’s formula of cheap chic defies the economic gloom in its key markets of Britain, Ireland and Spain, while it also gained from strong sugar sales.

It reported particularly strong British Primark and Irish Penneys sales this summer, while continental Europe was buoyant, as trading in new stores such as its July opening in Berlin exceeded expectations, and early sales of autumn and winter ranges was encouraging.

Its flagship Oxford Street store in central London saw some slowdown in the two weeks of the Olympic Games, but other stores compensated for this and the Oxford Street outlet soon recovered.

“June, July and August have been great for Primark in the UK. Trading has ticked up and there is no doubt Primark is thriving and gaining market share,” AB Foods finance director John Bason said.

Primark’s 242 stores, which sell chinos for €12.50 and cable jumpers for €15, expect annual sales to rise 15%, while stripping out new store openings like-for-like sales are expected to rise 3% for the full year, ahead of the first half’s 2% rise.

This comes as many European retailers, such as Marks & Spencer, are struggling as consumers’ incomes are being squeezed by rising prices, muted wage growth and austerity measure from western European governments.

ABF, which also sells Silver Spoon sugar and Twinings tea, said profits at its sugar business for the full year will be “considerably higher” than last year due to the benefit of rising European and African revenues, and despite lower prices in China which will see Chinese annual sales down.

Analyst Graham Jones at house broker Panmure Gordon forecasts earnings for the full year to Sept 2012 will rise 15.6% to 85.5 pence a share and he upgraded his Primark profit forecast after an acceleration in top-line growth.