Primark defies the downturn with strong growth in sales

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Value fashion retailer Primark has reported that full-year margins are expected to be ahead of last year despite rising input prices, which are forecast to hit the clothing sector generally.

In an update that surprised the City, the retailer - which is owned by Associated British Foods - said that it would benefit from increased volumes, which would more than offset higher freight charges and the effect of adverse currency movements on supply costs.

Primark said that it recorded “strong” operating margins during an “excellent” year to date and continued to defy the downturn in the third quarter.

The retailer said that shoppers had snapped up its £12 floral dresses and court shoes for £10 to help it record strong like-for-like increases. Analysts estimated that like-for-likes were up 7% in the 16 weeks to June 19, just below the 8% reported for the first six months.

Primark reported a 17% jump in total sales over the 40 weeks to the same date, driven by increased selling space as well as like-for-like growth.

In the 16-week period, total sales growth dropped back to 15%, affected by the weakness of the euro, which hit non-UK revenues when translated into sterling.

Panmure Gordon analyst Graham Jones said: “Primark saw sales grow by 15%, which we estimate equates to 7% like-for-like growth - only a slight slowdown on the first half, even though it is lapping much tougher comparisons. Strong operational gearing means margins at Primark look better than was expected, despite cost pressures.”

He said he expected to upgrade his full-year EBITA forecast on Primark from £295m to £315m, with the full-year margin rising from 10.9% in 2009 to an estimated 11.6% in 2010.

Credit Suisse analyst Charlie Mills said: “The surprise is that the group now expects margins to be up, so retail profits look set to be well ahead of our estimates.”