Primark unveils 11% rise in first-half profits but strong US dollar causes alarm

Primark has posted an 11 per cent rise in first-half profits as the discount chain gears up for expansion into the US, but warned about rising costs due to the stronger dollar, reports The Guardian.

George Weston, chief executive of Primark’s owner, Associated British Foods, said plans for the retailer’s foray into the north-east US were “well advanced”. Last autumn, it struck a surprise deal to to take over unwanted shop space in American malls from the US retailer Sears. The first outlet is expected to open in Boston later this year.

International expansion boosted total sales at Primark, which now has 287 stores, by 15 per cent to £2.5bn at a constant exchange rate in the six months to 28 February, the company’s first half. Operating profits were 11 per cent ahead at £322m constant exchange rates (or 8 per cent at actual rates).

However, on a like-for-like basis (which excludes new stores) sales were flat in the first half. The retailer blamed the unseasonably warm weather across northern Europe last autumn, along with the impact that new stores in the Netherlands and Germany had on existing shops.

The UK delivered a positive like-for-like performance and Spain, Portugal and Ireland all performed very strongly, Primark said. The retailer plans to open more stores – or extensions to existing shops – in Germany, Belgium and the UK in coming months. Total new selling space this year will be under 1m sq ft, compared with 1.5m sq ft planned for the next financial year.

Like other retailers such as H&M, Primark has been hit by the strengthening US currency because it buys much of its garments in dollars but sells them in euros and sterling. The continued impact of the stronger dollar will drive up costs for the autumn-winter season. The group indicated it would not pass on these costs to customers, which means profit margins could be hurt.

After four new stores opened in the Netherlands and three in Germany, including an 80,000 sq ft branch in Dresden, sales in existing stores declined in the first half as customers chose to shop more locally. Primark said this mirrors the trading pattern seen in the early days of its expansion in new markets. If the Netherlands and Germany were excluded, like-for-like growth for the group would have been 3 per cent in the first half.

At Primark’s owner ABF, profits before tax halved to £213m. Higher profits at Primark partly offset a sharp drop in profits at the group’s sugar division due to much weaker EU sugar prices.

Weston warned: “If the current euro weakness against sterling and the US dollar persists, this will have an impact on the group’s operating profit for the remainder of this financial year and a greater impact next year.”

Image: Primark via Shutterstock