Primark owner's shares slide depite solid trading
Shares in Primark owner Associated British Foods (ABF) tumbled more than 3pc yesterday as investors digested a trading update that didn't promise the type of future margin improvement anticipated by some analysts.
The decline in the shares came despite a strong performance from the sugar to clothing group, where Dublin-headquartered Primark is the biggest part of the business.
ABF, whose CEO is George Weston, said that during the fourth quarter of its financial year, which ends on Saturday, it has experienced an even lower markdown on goods at Primark than had been recorded during the third quarter.
The group added that sales at Primark, which generated £5.9bn of ABF's £13.4bn (€14.7bn) revenue in the previous financial year, are expected to be 13pc ahead of that figure on a constant currency basis, driven by increased selling space and a 1pc increase in like-for-like sales. At actual exchange rates, Primark revenue should be 20pc ahead, according to ABF.
"Primark has performed particularly well in the UK where full year sales are expected to be 10pc ahead of last year on a comparable basis and our share of the total clothing market has increased significantly," said ABF in its trading update.
Primark pays for its goods in dollars, and currency fluctuations over the past number of months have had an impact on the retailer and will continue to do so as it moves into its new financial year. "With most of next year's first-half UK purchases contracted at the weaker sterling/US dollar exchange rate than the same period last year, there will be an adverse effect on margin in the first half," warned ABF. "However, the strengthening of the euro against the US dollar in recent months will have a beneficial transaction effect on Primark's eurozone margins, particularly in the second half of next year if these rates prevail."
It added: "With some cost increases and markdowns returning to a more typical level, we expect full year margins to be similar to this year."
ABF has expanded its Primark chain significantly in the past number of years, opening stores across Europe and also in the United States.
The group said that it opened three US stores during the past financial year and will open its ninth outlet there next year, in Brooklyn. Primark has also extended its first US outlet, in Boston, by 20pc.