Primark's strong sales see ABF revise earnings forecast

STRONG SALES at discount clothing chain Primark, which trades as Penneys in the Republic, led its owner Associated British Foods (ABF) to increase its full-year earnings forecast.

ABF finance director John Bason said sales at Primark stores open at least a year rose 9 per cent over the past six months, in contrast to declines reported recently by mid-market rivals such as Marks and Spencer and Next.

Shares in ABF closed up 4 per cent at 845.5 pence.

ABF does not separate the performance of its 37 Penneys outlets in the Republic from the Primark brand, but said sales in the chain would be “well ahead of last year”.

It plans to open six new Primark outlets in its second half, although none of these will be in Ireland.

While sales grew, ABF said gross profit margins at the 191-store chain fell because of a rise in import costs following a fall in the value of sterling against the dollar.

The recession, as well as better weather compared with last year’s summer washout, helped to fuel demand, he said. But Mr Bason claimed there was also an underlying shift towards buying cheaper clothes that would continue beyond the downturn. “There’s a real change in people’s shopping habits, and certainly among . . . 20- to 30-year-old females, it’s a change for good,” he said in an interview, reporting particularly strong sales of footwear and summer dresses.

Primark’s underlying sales growth, which ABF expects to be 7 per cent over the year to September 12th, also outstripped international rivals, helped by the strength of its UK market. Primark accounts for nearly a third of group profit.

Sweden’s Hennes Mauritz reported a 3 per cent drop in underlying sales in July on the same month last year, following a 5 per cent decline in June. Europe’s biggest fashion retailer Inditex posts first-half results on September 16th.

Shore capital analyst Clive Black said Primark’s sales growth meant he was putting his “hold” rating on ABF’s shares under review for a possible upgrade.

Revenues and operating profit rose at its groceries division as well in the second half of its fiscal year, ABF said in a trading update ahead of full-year results on November 3rd.

Growth was also driven by a big rise in profits at the group’s sugar and agriculture business as strong performances in Europe and African sugar business Illovo more than offset losses in China. – (Reuters)