Primark profits rise as it eyes international expansion

The value fashion chain’s owner Associated British Foods (ABF) said operating profit at the retailer jumped 8% to £913m in the year to September 14.

Same-store sales dipped 1% in the UK and 2% across the wider Primark business. But total sales advanced 4.2% at actual exchange rates to £7.79bn, driven by new store openings.

In the UK, where ABF said it had been “encouraged” by the response to its new-look Birmingham store, total sales climbed 2.5%.

Primark’s operating profit margins increased from 11.3% to 11.7% year on year, but ABF warned that the weakness of sterling would “have a negative impact” on the retailer’s margins in the first half of its current financial year.

Despite those challenges, the business is ramping up its expansion plans.

ABF said Primark would “continue to expand” its store network next year, with plans to open 1m sq ft of new space. Most of its new shop openings are slated for France and Spain.

The plans come following a successful year in Primark’s European business, where sales climbed 4.8%. The retailer hailed “excellent” sales in France and Spain, alongside “strong performances” in Italy and Belgium.

Like-for-like sales in Europe were down 2.9%, driven largely by “weak” sales in Germany. But like-for-like growth in Spain, Portugal, France and Italy, coupled with an 8% increase in selling space – new stores were opened in Bordeaux, Seville and Ljubljana – boosted total revenues.

Stripping out the negative impact of its German business, like-for-likes in Europe were down 1.1%.

Primark said a new boss of its German division was “leading a number of initiatives” to get sales back on track, including local marketing campaigns and the reduction of selling space in some larger stores.

The fashion retailer said its US division, where it operates nine stores, delivered “strong” growth across the year as its fledgling business across the pond “significantly” reduced its operating losses.

Primark said sales growth was driven by like-for-like gains and “excellent trading” at its Brooklyn store, which launched last summer.

ABF said that the “positive reception” to Primark from US shoppers gave it “confidence for further expansion in the US market”.

Primark plans to open two stores in the US in its new financial year, at New Jersey’s retail and entertainment complex American Dream and Florida’s Sawgrass Mills. It has also signed leases for stores in Philadelphia’s Fashion District and in State Street, Chicago, as it presses ahead with its overseas push.

ABF chair Michael McLintock said: “This year Primark celebrated the 50th anniversary of the opening of its first store, and I am pleased to report another year of strong progress and notable achievements. The expansion in selling space included Birmingham High Street, a showcase for our entire product range and innovative in-store experiences, and our first move into eastern Europe with the opening of a store in Slovenia.

“Our stores in the US performed very well and we have announced four further stores to open in the near future. Primark again demonstrated its track record for operational excellence with further improvements in buying and stock management.”

Looking ahead, McLintock added: “Primark has a strong pipeline of good-quality sites. We expect cost reductions in both the cost of goods and overheads during the year, but the weakness of sterling during this financial year will result in a margin decline for Primark in the first half.

“The sterling exchange rate is currently very volatile but, at current exchange rates, we now expect margin in the second half to be in line with the same period this year and margin for the full year to be only a small reduction on that achieved this year.”

Buoyed by Primark’s success, ABF posted a 2% uplift in pre-tax profit to £1.4bn across the year, as sales rose by the same percentage to £15.8bn.