The continuing quest for bargains by shoppers at Primark, the budget fashion retailer, would help to drive a “substantial” rise in full-year profits for its owner, Associated British Foods (ABF), the company said yesterday.
Sales at Primark rose by 19 per cent at its 196 stores in the 16 weeks to January 2. The figure beat expectations and was boosted by women buying new dresses, bags and accessories for Christmas parties.
ABF declined to give like-for-like figures in its first-quarter statement, but Graham Jones, an analyst with Panmure Gordon, its broker, estimated an increase of 7 per cent, adding: “While many retailers have reported better like-for-likes this Christmas, it should be remembered that these are mainly against very weak comparisons from a year ago, whereas Primark delivered 5 per cent growth in the first half last year, so is lapping strong numbers.”
The performance echoed that of Matalan, a fellow budget fashion retailer, which this week reported improved growth for the Christmas period, with like-for-like sales climbing by 13.7 per cent in the five weeks to January 2.
The sales increase at Primark was led by a strong performance in the recession-stricken economies of Britain and Spain, but John Bason, finance director of ABF, was adamant that the success was not simply attributable to consumers turning to the store in difficult economic times.
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He said: “For me, Primark has been the story of the decade, not just the last couple of years. It has grown year on year, and people see it as the best value on the high street. Why should that go away in happier economic times?”
Mr Bason added that the good performance in Spain, where like-for-like sales were above 10 per cent, was an “encouraging indicator” that Primark should continue to expand in continental Europe. The chain has recently opened new stores in Frankfurt, Porto and Liege.
In its first-quarter statement, ABF also reported strong growth across its other businesses, which include Silver Spoon sugar, Kingsmill bread and Twinings tea.
Group revenues were up 17 per cent, boosted by the weakness of sterling. At constant currency, revenues were up by 11 per cent.
The group’s sugar revenues rose 68 per cent, helped by the turnover of Azucarera Ebo — the leading sugar producer in Iberia, which it acquired in April 2009 — and a good crop.
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ABF’s grocery division, which accounts for a third of its revenues, grew by 4 per cent as demand for Twinings tea and Ovaltine drinks increased.
In America, ABF’s Mazola brand also produced increased revenue and margins, having experienced a tough first half in 2009.
Mr Bason said that the fashion and food retailer’s financial position remained strong, with net debt remaining below £1 billion, but he warned against expectations of any further acquisitions in the short term.
He said: “There are no immediate plans for acquisitions or disposals. That said, the portfolio is something we are always looking at carefully. Just don’t get too excited.”
Panmure Gordon upgraded its 2010 estimates on the back of the statement, increasing its earnings per share projection by 6 per cent to 63.5p, and increasing its earnings estimate for Primark from £165 million to £175 million.