The FINANCIAL — Associated British Foods PLC Monday said its stellar-performing discount fashion retailer Primark's growth across Europe remains undented, even amid concerns over the outlook for the region's fragile economic markets which are set for a difficult start to the year.
"We are looking at a tough beginning to 2012, but I think Primark is really well placed. Not because trading down, it's because we are gaining market share," Finance Director John Bason told Dow Jones Newswires in an interview.
"We have got strong like-for-likes [sales] in Spain and in Germany and that's because it's a new concept that's growing. We are not the well-established business there."
Earlier, the group said Primark's first-half revenue is seen up 15% year-on-year. Like-for-like growth is expected at 2%, but down from 3% last year. The chain has been a consistent outperformer for AB Foods, which is 55%-owned by a family holding of Chief Executive George Weston.
According to Borsa Italiana – London Stock Exchange Group, at the half year, the group will have 232 Primark stores with 7.8 million square feet of selling space, expanding to 8.2 million by the year end. Nine new stores opened in the half–two in the U.K., bringing the total there to 156, two in Spain, three in Germany and one each in Portugal and the Netherlands.
The performance of Primark–which is in a strong competitive position in the U.K. as a result of its high volume, low price offer–will be a boon to the high-street retail sector which has delivered mixed results and seen high-profile high-street closures.
Economists and retailers continue to be concerned that spending remains squeezed by tax hikes, spending cuts, below inflation pay rises and unemployment.
Still, U.K. retail sales volume rose more than expected in January, as weaker inflation alleviated the pressure on shoppers' disposable incomes.
Bason said the retail outlook in the U.K. remains hard to assess.
"I can't divine a trend at the moment. I wouldn't be negative and I wouldn't be particularly positive. I think it has been pretty steady," he said.
AB Foods said Primark's first-half operating margin is seen lower year-on-year, hit by cotton cost increases, but it expects the benefit of lower input costs to be seen in the second half.
The company has absorbed cost inflation to safeguard the price leadership position of Primark, even as cotton prices, increased sales tax and higher freight costs have put margins under pressure.
AB Foods, which also makes Silver Spoon sugar, expects higher first-half operating profit before exceptional items, with an "exceptionally strong" peformance from its sugar operations on higher global prices and volumes.
However, amid the company's other divisions, grocery first-half profit is seen "substantially lower", hit by restructuring and operating costs. AB Foods also makes Kingsmill bread and Twinings tea.
Bason said competition and pricing in the U.K.'s grocery sector remains strong.
"The pricing environment does remain tough. It's still very promotion driven, where people are looking for value. Given the tough year that people have had with disposable incomes in 2011, that shouldn't come as a surprise," he said.
At 0950 GMT, AB Foods shares were down 24 pence, or 2%, at 1195 pence, in a lower London market. Analysts said the update is robust, but the stock's high valuation and strong recent run would limit gains and could lead to some profit-taking.