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Discount chain Primark bucks trend with 21% sales increase

© The Herald
Originally published: 10.07.2009

The combination of warm weather and a still cost-conscious consumer helped Primark overwhelm expectations in the third quarter of its financial year with a 21% increase in sales against the same period of 2008.

Although like-for-like sales growth wasn't detailed by the retailer, analysts reckon that given slowing store opening, this was in the region of 7% to 8%.

This continues the momentum the retailer showed earlier in the year and contrasts with other clothing retailers who have been struggling to keep sales up as consumers cut back on discretionary purchases.

Panmure Gordon analyst Graham Jones said: "This is a hugely impressive performance given the economy and performances by its peers, although we believe weather must have been a factor."

However, the retailer is tipped to record a squeeze in margins over the second half of its financial year thanks to the strong dollar which has pushing up costs for all UK clothing companies. Primark is also expected to see its margins hit by the opening of a new UK distribution centre.

The discount fashion chain, which became known for its super-cheap clothes long before the arrival of the credit crunch, now has 190 stores.

The chain is expanding internationally. It has opened new stores in Bremen, Lisbon and Barcelona over the past few months and now has 13 stores in Spain alone.

Parent company Associated British Foods also saw growth in its sugar and grocery operations. But it faced tougher trading elsewhere in the group, notably at Allied Bakeries, where sales volumes were hit after it lost some low margin own-label and some branded bread business. Profits for the division were still ahead in the third quarter as a result of improvements in baking operations.

"We are hitting the right spot with the consumer, trading has picked up and the weather has been good. Like-for-like sales have improved from the first half," AB Foods finance director John Bason said.

The London-based food and retailing company, 55% owned by the family of chief executive George Weston, which markets Silver Spoon sugar, Twining tea and Ovaltine drinks, stuck to its forecast of flat earnings for the year to September 2009.

But it is more upbeat about the following financial year.

"Next year there are grounds for optimism, particularly in sugar and also in grocery while Primark's momentum will continue," Bason said.

AB Foods shares rose to an early high of 772p but they closed down 2p or 0.3% at 763p as some investors regi-stered disappointment the group had not been more positive about the outlook for the business.


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