Primark adds to fears of high street slowdown
Tuesday 01 March 2011
Primark, the discount fashion chain, has warned of a "noticeable slowdown" in UK consumer demand since the start of 2011, posted its weakest underlying sales growth for at least five years yesterday.
The comments on Primark sent shares in its parent, Associated British Foods, tumbling by nearly 6 per cent, despite the owner of Patak's curry pastes and Kingsmill bread boasting its operating profits would be ahead of last year. Primark said that trading had been "strong" in the first three months of its financial year since mid-September, despite the snow before Christmas, but warned that footfall into its UK stores had been lower since the turn of the year. The 214-store chain expects to grow underlying sales by just 3 per cent for the six months to 5 March – half of its last full year's 6 per cent growth – although total sales will be up by 11 per cent.
Darren Shirley, the analyst at Shore Capital, said there had been "a significant slowdown in the UK," as Primark cited a "very encouraging" performance across Continental Europe,including its stores in Spain, Germany, the Netherlands and Portugal. He warned that Primark's group like-for-likes could have fallen by 1 per cent for the 7 weeks since 8 January.
The UK slowdown at Primark is significant as it suggests that if the discount fashion powerhouse is finding trading tough, its weaker listed and privately-owned clothing rivals are likely to be suffering far more pain.
The update confirms a subdued start to the year for the high street, which has been further supported by recent data from the CBI and John Lewis, the department store chain.
John Bason, the finance director of ABF, which also owns the Ryvita snack and Twinings Ovaltine brands, said that UK consumers were "feeling the squeeze" from high inflation, driven by factors including rising food and petrol prices, as well as the hike in VAT.
Mr Bason said: "It is a combination of factors and people change theirbehaviour when they feel something themselves in the wider economy."
Primark said its operating margin in the first half will be lower than last year, hit by the increase in VAT in the UK and the continuing rise in cotton prices. The retailer added that margins will "remain under pressure" in the second half.
Primark expects to open six stores over the next six months. However, Mr Bason said he would be "surprised" if it opened its store by London's Tottenham Court Road tube station before Christmas.
Elsewhere, ABF said that profit from its sugar business will be ahead of last year, driven by substantial improvements in Spain and China that helped to offset a decline at its Illovo business in South Africa.
Its UK agriculture business alsodelivered "good revenues and profit growth," while its grocery division was boosted by Twinings Ovaltine and a very strong performance from its British operations.
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