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Primark FY sales tipped for double-digit rise​

Primark full-year sales are expected to rise 13% on last year, as the value fashion retailer helps boost parent company Associated British Foods Plc (ABF) full year outlook.

In a pre-close period trading update today (11 September), ABF said Primark sales are tipped for a double-digit rise at constant currency and on a comparable week basis, driven by increased retail selling space and 1% growth in like-for-like sales.

A lower level of markdown at Primark has further helped further improve ABF's full year outlook, with adjusted operating profit for the group expected to be "well ahead" of last year.

The company added it expects Primark's full year operating profit margin to be better than the first half, which declined to 10% from 11.7% a year earlier, reflecting the strength of the US dollar on input costs.

In its interim results, ABF explained that the full effect of sterling weakness against the US dollar would have a greater impact on margin in the second half because currency hedges maturing in that period would be at less advantageous rates.

Meanwhile, Primark has "performed particularly well" in the UK where full year sales are expected to be 10% ahead of last year on a comparable basis, with ABF adding its share of total clothing market in the country has also increased significantly.

"After a good first half, third quarter trading was particularly strong in the lead up to Easter, benefiting from comparison with prior year results that were affected by poor weather and an earlier Easter holiday," ABF said. "Favourable weather in the fourth quarter and the strength of our consumer offering resulted in markdowns at lower levels than normal. Early trading of the new autumn/winter range has been encouraging."

Three new Primark stores opened in the US during the year, while the Downtown Crossing store in Boston was extended by 20% increasing it to 92,000 sq ft. The ninth US store is scheduled to open next year in Brooklyn, New York.

In addition, a total of 30 new Primark stores have opened across nine countries during the financial year so far, taking the total state to 345 stores. ABF plans to open a further 19 location over the course of the next financial year, with France, Germany and the UK to see the most investment.

Honor Strachan, principle retail analyst at GlobalData, notes Primark is now just 0.5 points off becoming the second largest player in the UK clothing market behind Marks and Spencer.

She adds: "Primark's success, largely driven by the addition of 11 new stores in the UK and added an additional 40% space at its Oxford Street East flagship, comes at the expense of the midmarket. Its value credentials, broadened offer and improved store experience have allowed it to acquire new customers who are frustrated with stale ranges and dated stores across the likes of M&S, Arcadia and Debenhams – or whose budgets are squeezed and are satisfied with the product quality and choice at Primark."

ABF will publish its full year results for the 52 weeks to 16 September 2017 on 7 November.

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