Analysts forecast that Primark could take a hit of up to £20m on profit margins this year as it absorbs input price rises to continue to offer its cheap chic fashion.
The value clothing retailer’s parent, Associated British Foods, said that sales at Primark rose 11% - or 13% at constant currencies - in the first half to March 5 to £1.4bn. Like-for-likes sales were up 3%. Operating profits rose by £7m to £151m.
Shares in ABF tumbled following the news that chief executive George Weston said he would defend Primark’s market share rather than increase prices as a result of soaring cotton prices.
“We are determined that Primark will retain its position as a price leader,” he insisted.
Weston said that sales had gained momentum in March and April after a slow January and February.
Panmure Gordon analyst Graham Jones said that ABF’s assurance that Primark’s sales had been “pleasing” since the end of February was “encouraging”.
But Jones cautioned: “However, Primark’s commitment to price leadership means we think it has largely absorbed the VAT rise and cotton price increases with only modest price rises last autumn.
“We are determined that Primark will retain its position as a price leader”
George Weston, Primark
“As such EBITA margins fell from 11.4% to 10.7%, leaving EBITA up 5% to £151m. While we have nudged up our second half like-for-like sales growth assumption from 1% to 3%, we have cut our full-year margin assumption from 11.6% to 10.8% - although we note this only brings it back to the 2009 level.”