Primark is usually as adored by the City as it is by customers. But despite posting rising profits, analysts reacted rather coolly.

Primark is usually as adored by the City as it is by its ever growing army of loyal customers. But despite posting rises in both sales and profits, analysts reacted rather coolly than usual to its interim update.

True, its like-for-likes were flat, as a result of the warm autumn and new stores in Germany and the Netherlands cannibalising existing ones, but underlying trade is in good shape.

Primark owner Associated British Foods reported “very strong trading” in stores opened during the year – excluded from the like-for-like measure. Indeed, some of those shops already feature in Primark’s own ranking of its top 20 stores, including Berlin Alexanderplatz and its new Cardiff shop.

It is movements in exchange rates that is spooking the City, an issue that Primark bosses have warned will hit sourcing costs in the coming years. The value fashion giant sources some of its product in US dollars and its strengthening is impacting costs.

No plans to pass the cost

But typically for Primark, a retailer that has benefitted enormously over the years by unwaveringly putting its customers at the centre of its thinking, it has vowed not to pass on the extra costs to the consumer.

“We will not allow currency changes to impact our model of providing up-to-the-minute fashion at the best value to our customers in each of our markets,” a defiant George Weston, chief executive of ABF, insisted.

“Primark has suffered similar threats to its bottom line before”

Nicola Harrison

While that is a cause of short-term concern for analysts and their forecasts, and consequently ABF’s share price, it is absolutely the right thing to do.

Primark has suffered similar threats to its bottom line before, in the shape of 2010’s rising cotton prices, and then, like now, it refused to pass on the extra cost to shoppers.

It could be argued that with annual profits of more than £1bn, ABF, more than most, can afford such a strategy.

But there are lessons to be learned from taking the long-term view, lessons that Primark’s big four grocery peers might wish they had heeded instead of protecting gross margins to such an extent that they allowed more price competitive rivals to take a slice of their market share.

Primark will ride out the currencies storm as it did with cotton prices, and as conditions return to normal the City will be back on board. But critically, its adoring shoppers will not have noticed a thing.