Primark first-half surge opens door for opportunity in Europe

The value fashion retailer reported that total sales rose 19% to £1.26bn in the 24 weeks to February 27 - a like-for-like rise of 8%.

Profits at Primark, which is owned by Associated British Foods (ABF), rose 18% to £144m on margins flat at 11.4%.

Trade in Primark’s international markets was “exceptional”, according to ABF. Despite pressure on gross margins in the first quarter resulting from the weakness of the pound and higher freight costs, margins were broadly flat.

The retailer will open a 200,000 sq ft warehouse in Spain this summer. In February, Primark said it would open a freehold warehouse in Ireland, replacing an existing leased facility.

Panmure Gordon analyst Graham Jones said Primark’s first-half performance was “impressive” and its international success pointed to the potential for “substantial” growth in Europe.

Jones said: “Contrary to some claims, we do not believe Primark’s margins are, or will be, materially diluted by expansion in Continental Europe, and we do not expect the warehouse moves to have any material impact on Primark’s cost base.”

Shore Capital analyst Clive Black said Primark’s operating performance “remains truly outstanding” and added that there were “marvellous opportunities still facing the business in Europe in particular”.

Credit Suisse analyst Charlie Mills said that Primark’s margins were better than expected, with strong volumes helping to hold margins at last year’s levels.

Citi analyst Sara Welford said that Primark “continues to go from strength to strength” and that while the Spanish warehouse is likely to add to the retailer’s cost base it was a necessary cost. “Margin expansion for a retail business in its infancy should be secondary to securing sustainable top-line growth,” she said.