Primark owners Associated British Foods (ABF) has raised its profit outlook for the second time this year, with the bottom line bolstered by new store rollouts and click and collect trials.
In a pre-close trading statement, the business behind the high street staple said that Primark’s UK sales are expected to eight per cent higher in the fourth quarter, with customer spending proving resilient despite unusually wet weather in July and August deterring a number of shoppers from hitting the high street.
For the financial year as a whole, ABF said this morning it also expects Primark sales to be 15 per cent higher – reaching £9bn- as a result of “limited and carefully selected” price increases through the year to “partially recover” high levels of input cost inflation.
Primark, which does not have a full suite of online shopping services, has also been aided by click and collect trials, in a handful of its shops in the UK.
The store initially only offered the service on kidswear, but said from this week onwards customers across 57 stores in London and the north west of England and north Wales will be able to buy a selection of womenswear online for collection in their local store.
Sales in the US are expected to be 45 per cent higher in the fourth quarter driven by opening of four new stores.
The brand, which also owns brands such as Twinings, said that its sugar production arm also performed well thanks to a better than anticipated UK sugar beet crop.
“The group continues to trade well, managing inflation, recovering cash margin and continuing to drive sales in a challenging macroeconomic environment,” ABF said.
“At Primark, we continue to expect a substantial recovery in gross margin as a result of lower material costs, the weakening of the US dollar against sterling and the euro and lower freight costs, all of which have improved in recent weeks. We therefore expect Primark adjusted operating profit margin to recover strongly in the next financial year.”
The company’s share price was up over seven per cent this morning following the news.
“Encouragingly, the inflationary headwinds for Primark appear to be abating. The group expects Primark’s margins to recover strongly next year driven by lower material costs, a weaker US dollar and lower freight costs, all of which have improved in recent weeks. This should help drive a stronger profit performance next year, even if pressures on the consumer persist,” Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, said.
“The sales performance from Primark this year has been very solid. This is impressive given the recent demise of Wilko’s and the travails of other High Street brands. It shows that the high street isn’t dead and shoppers still love a bargain, but you need a brand that resonates strongly with consumers. Primark has that. This should leave it strongly positioned whichever way the economic winds blow.”