Primark has reported strong first-half sales growth helped by higher prices and a return of tourists and office workers across the UK’s cities, but warned that revenue would slow in the coming months amid the cost of living crisis and higher interest rates.
The retailer’s parent company Associated British Foods said like-for-like sales rose 10% at the budget clothing chain in the six months to 4 March compared with a year earlier.
In the UK, like-for-like sales climbed 15%, as Primark attracted more shoppers on high streets and in retail parks, but also in its city centre stores which have become busy again as tourists and office workers have returned.
George Weston, the ABF chief executive, said tourists, such as people taking day trips, were the main reason Primark’s stores in London, Manchester, Birmingham and Liverpool were busier.
Faced with surging energy and freight costs, Weston said the company had raised its prices in the single digits, but “by less than costs, and less than others”, which meant profits suffered. Primark made a first-half operating profit of £351m, down 15% from a year earlier. Kidswear prices have been unchanged.
“The need for further price rises has reduced significantly just over the past few months,” he said. “We’re quite confident that most of the price rises that consumers were going to see they’ve already seen. And then I hope we can get back to the world we were in for 10 years where we move prices down, not up.”
The firm said sea freight costs had returned to normal levels, and energy prices had also fallen, although the strength of the US dollar against sterling and the euro is driving up the cost of bought-in goods. Operating costs excluding exceptional items went up by 24% in the first half across the ABF group.
Sales were good in September and weakened in a warm October, before picking up again in November and December, with two record sales weeks in the run-up to Christmas. The company said trading in the new year started very strongly but eased in February against a harder year-on-year comparison.
“Inevitably we’re nervous about the consequences of the cost of living crisis and how it will flow through,” Weston said. “We’re seeing significantly higher footfall and slightly smaller basket sizes so more people are coming in but on average they are buying a little bit less. Part of the explanation may be cost of living.” Sales are also expected to slow in the second half because of tougher year-on-year comparisons.
“We’d like it to warm up so more people will get interested in spring and summer clothes than are at the moment,” the ABF boss said. The more upmarket Edit range for women has been popular, along with a range created with the Spanish actor Paula Echevarría. Women’s unitard jumpsuits are “absolutely flying”, he said, while beauty, skincare and bags are also selling well.
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Weston said there would also be fewer food price increases in the coming months, reflecting ABF’s lower costs. “We’ve raised most of the prices we were going to raise,” he added.
ABF made a statutory profit before tax of £644m last year, up 1%, while operating profit was down 3% at £684m. It expects this year’s operating profits to be similar to last year.
Shares in ABF were down 3.2% on Tuesday, making it the top faller on the FTSE 100.
