Primark’s outlook is improving as cash-strapped shoppers seek inexpensive fashion at the UK budget clothing chain, boosting its market share.
(Bloomberg) — Primark’s outlook is improving as cash-strapped shoppers seek inexpensive fashion at the UK budget clothing chain, boosting its market share.
The retailer’s adjusted operating profit margin should exceed 8% this year, ahead of former guidance, owner Associated British Foods Plc said Monday. The stock rose as much as 1.6% in morning trading.
Primark stores are attracting clients with items such as £3 ($3.59) T-shirts and £8 minidresses, while at this time last year, the omicron variant of Covid was still deterring consumers from mixing in public. The strong demand is offsetting the effect of higher costs for garments, labor and shipping, which have eroded profitability.
“You’ve got people out and about buying things for socializing and holidays,” said John Bason, finance director of AB Foods, in a phone interview. “Consumer spending really has been more resilient than expected.”
AB Foods predicts the retailer’s full-year revenue will gain 16%. Primark had record sales in the week before Christmas with consumers buying warm clothing, party-wear and beauty products.
Still, inflation may lead consumers to cut back on spending due to higher interest rates and energy bills, AB Foods said.
“We have to remind ourselves that the cost-of-living crisis hasn’t gone away,” Bason said. “We remain cautious about the consumer outlook for full year.”
Primark struggled during Covid lockdowns because stores were forced to close for months and the business had no e-commerce site to fall back on. The retailer started a click-and-collect trial for its website late last year, the first time that customers could buy from the company online. The test focused on children’s products across 25 stores in the north west of England, Yorkshire and north Wales.
The company, which also owns grocery, sugar and agriculture businesses, said Monday total full-year profit is expected to be in line with the previous year. That’s also an improvement on former guidance. Inflation has become less volatile recently and some input costs are declining.
The stock has risen 24% this year. The company’s fiscal year ends mid-September.
(Updates with CFO comment in fourth paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.