Primark owner Associated British Foods (ABF) has flagged that the worst of the cost inflation in cotton prices is over for the value fashion retailer.
Revealing an acceleration of sales growth at Primark in the third quarter, ABF finance director John Bason told Retail Week that inflationary pressures are starting to reduce.
“We flagged a year ago the increase in cotton prices, but I think we’re over the worst now,” he said. “Those cost pressures are easing. Autumn/winter this year will be the low point in terms of margin pressure, but we’re looking at some relief in 2012.”
Bason’s comments are significant because Primark is particularly exposed to inflationary pressures because of its strong value stance.
The retailer has refused to raise prices this year despite high input price inflation which, along with the VAT increase in the UK has hit gross margins.
Last week’s trading update showed total sales at Primark rose 15% in the 16 weeks to June 25, taking sales growth for the first three-quarters of the financial year to 13%.
As usual, ABF did not disclose a like-for-like figure but Panmure Gordon analyst Graham Jones estimated that like-for-likes would have been around 3%, roughly the same level as the first half.
Primark’s international performance is believed to have been slightly stronger, driven by space growth, while UK growth is thought to have been closer to the 10% mark.
Six stores opened in the third quarter – three in the UK, two in Portugal and one in Spain. ABF said profits for the full year will meet expectations and be similar to last year’s.
Bason said Primark had benefited from holding prices even at the expense of margin. “Primark has built up great credibility,” said Bason. “The thing the management have been very strong on saying is that you don’t throw away the trust you’ve built up with the customer.”
Over the year ahead Primark will open stores at Westfield Stratford, Edinburgh and the eastern end of Oxford Street.
Observers believe Primark could acquire some of the stores of failed value rival TJ Hughes. Bason said that there are still towns and cities where Primark would like to be represented, and others where it would like to upgrade some of its earliest stores from the 1980s and 1990s.
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