Business

Thursday 2 October 2014

Sunshine smiles on Primark as sales surge 8pc

Neil Maidment

Published 11/07/2013 | 09:05

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Clothing retailer Primark
Clothing retailer Primark

Primark has reported a sales hike of 8pc, attributing the rise to the warmer weather.

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Associated British Foods is seeing signs of improving consumer confidence in Britain, with a strong performance from its Primark discount clothing chain helping to lift third-quarter sales by 8pc.

Primark also trades in Ireland as clothing retail store Penneys, which has established 38 branches around the country since its first store opened in Mary Street, Dublin.

While many British retailers have struggled as consumers fret over job security and squeezed incomes, Primark's low prices are pulling in cost-conscious customers who are at last beginning to loosen their purse strings.

Primark's performance supports recent British retail data showing a steady rise in sales, while a separate study suggested that consumer morale reached a two-year high.

"I think the UK is pointing in the right direction," AB Foods Finance Director John Bason said today. "I think the UK consumer remains careful; but for the right things, the UK consumer is spending. Our view is that it's not getting worse."

Sales at Primark, which has more than 250 stores in Britain and Europe and generates about a third of the group's profit, grew 20pc in the 16 weeks to June 22 and are up 22pc in the year to date. AB Foods shares rose 6pc on the news.

As expected, Primark's third-quarter sales growth was slower than in the first half of its financial year, when sales rose 24pc including new stores and by 7pc on a like-for-like basis. It's third quarter was hit by freezing weather in March and April, which kept shoppers off the streets.

AB Foods, which will step up Primark's store openings in the new financial year, including its first in France, said that underlying sales had been "subdued" by cold weather in the period but had recovered "markedly" since then.

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Third-quarter revenue at the group's grocery division, which includes the Twinings, Ryvita and Ovaltine brands, rose 7pc. However, its sugar business saw revenues fall by 15pc because of delivery timings in the UK and shipments of Zambian exports to the EU coming after the end of the quarter.

AB Foods said that it remains on track for adjusted full-year earnings per share (EPS) in line with expectations.

A note from Panmure Gordon analysts said: "AB Foods is, in our view, on course to deliver another year of double-digit EPS growth in 2013. Primark's growth remains particularly impressive ... we believe Primark is set for another decade of strong growth."

The broker moved its rating to "buy" and raised its price target from £18 to £21.

Primark's fortunes contrast with fellow FTSE 100 retailer Marks & Spencer, which posted an eighth consecutive quarterly fall in clothing sales on Tuesday.

Primark added that its first foray online in a trial launched last month with online fashion merchant ASOS had drawn an "excellent" response, though it reiterated that the initiative remains a trial.

The business came under scrutiny in April after 1,129 people died in the collapse of a factory in Bangladesh, where clothes were made for various international brands including Primark.

The collapse of the Rana Plaza building ranks among the world's worst industrial accidents and highlighted the risks involved with the global retail industry's search for cheap production.

In May a new accord was launched by trade unions and signed by 70 brands, including Primark, which have agreed to accept legal responsibility for safety at their Bangladesh factories.

Reuters

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