Penneys' profits to recover after fall in costs

Sharp fall in costs of material and shipping expected to result in 'substantial recovery in gross margin', company said

Penneys' owner AB Foods said the retailer - alongside the Primark brand - generated £9bn (€10.4bn) in revenue last year. 

Penneys' owner AB Foods has said it expects profits at the low-cost fashion retailer to substantially recover after the cost of material and freight shipping fell sharply as it heads into the busy Christmas period.

It comes as the company confirms it remains on-track to grow to 530 stores worldwide by 2026. 

There are currently 37 Penneys branded stores in the Republic of Ireland and 395 Primark branded stores elsewhere. The company is on track to open 27 new stores this year.

According to its annual results for the financial year 2022/2023, Primark’s retail revenue stood at £9bn (€10.4bn) — up from £7.7bn the year prior — with adjusted operating profit 3% lower at £735m (€846m).

The company said the increase in revenue and sales is due in part to the decision to pass on only part of the input cost increases to consumers through higher prices.

The company’s gross margin dropped to 8.2% this year compared to 9.8% last year.

In its outlook, AB Foods said lower material costs and lower freight costs should result in a “substantial recovery in gross margin” and overall it expects Primark adjusted operating profit margin to “recover strongly”.

“We believe that the adjusted operating profit margin will be above 10%, with further improvement dependent on levels of consumer demand,” the company said.

No plans to increase prices

George Weston, chief executive of AB Foods, said there were no plans to increase any prices through the rest of the year. 

Mr Weston added shopping for Christmas lines had started early, as consumers spread the cost over more than one pay packet.

The bulk of AB Foods' earnings comes from revenue generated by Primark, but it also generates revenue from grocery sales, ingredients, agriculture, and sugar sales. Overall group revenue for the last financial year was £19.75bn (€22.4bn) — up from £17bn (€19.6bn).

“This increase in revenue was largely due to price increases across our businesses to mitigate high levels of inflation. As the financial year progressed, we saw the rate of inflation ease,” the group said.

Adjusted operating profit for the entire group was £1.5bn (€1.7bn) — up 5% on last year.

Shares in AB Foods were up 5.7% in morning trading.

The company’s £500m (€576.6m) share buyback scheme concluded at the end of October, with an additional £500m buyback programme announced.

• Additional reporting Reuters