Primark bucks negative trend with upbeat outlook

First-half sales are expected to have increased by 11% on a yearly basis at discount clothing retailer Primark, which trades here as Penneys. 

Parent group Associated British Foods (ABF) said an increase in retail selling space has driven revenue at Primark, which should see sales rise by 21% at actual exchange rates. ABF yesterday published a pre-close trading update ahead of announcing interim results for the six months to March 4 in April.

The group maintained its full-year earnings guidance with the growth at Primark supported by better performances in its sugar, grocery, agriculture, and ingredients businesses. Primark accounts for about half of ABF’s profit. Last month, when reporting first-quarter sales growth of 11% for Primark, ABF said the period had seen a “strongly positive” performance, in like-for-like sales in Ireland, via Penneys”.

Yesterday, the group said Primark was effectively bucking the trend set by recent profit warnings from UK names like Marks and Spencer and Next by not seeing a slowdown in UK spending habits since last June’s Brexit vote.

In its statement, ABF said it was not seeing any signs that British consumers were starting to rein in spending, contradicting official data which has pointed to a slowdown. Shoppers have driven growth in Britain’s economy since June. However, they are widely expected to turn more cautious as prices rise following the fall in the pound after the referendum.

Official data, released earlier this month, showed UK-based shoppers bought less in January while inflation hit its highest level since mid-2014 at 1.8%. However, ABF said Primark’s sales at UK stores open over a year would be up 2% in its first half and it had won market share.

“There is not an indication of people pulling back at this stage. The consumer in the UK has got more disposable income this year than they had a year ago - fact,” said finance director John Bason.

RBC Europe reiterated its “outperform” rating for ABF, highlighting its potential for double-digit earnings growth, Primark’s international expansion and the group’s strong balance sheet. n Additional reporting Reuters

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