The discount fashion chain Primark has posted its first fall in profits for more than a decade, despite new stores helping it deliver a 13 per cent leap in sales.
The fashion retailer – owned by the conglomerate Associated British Foods (ABF) – also said its landmark menswear concession in the upmarket department store Selfridges has got off to a storming start.
Adjusted operating profits at Primark tumbled by 8 per cent to £309m over the year to 17 September, as slower underlying sales growth and higher cotton prices contributed to a 2.3 per cent fall in its operating margin.
The retailer, which has 223 stores in countries including in Spain, Germany and the UK, explained that it "chose to forfeit increased profitability" by not raising its prices to recover cost inflation, notably on cotton. Primark grew revenues by 13 per cent to £304bn, driven by it opening 11 new stores across Europe and like-for-like sales up 3 per cent. The retailer's total sales are up by 25 per cent over the last two years.
George Weston, the chief executive of Associated British Foods, provided some welcome relief for cash-strapped consumers, particularly in the UK, when he said that clothing inflation would come down from early next year.
He said: "We are now still selling cotton that we bought at the peak. From January, cotton input prices will reduce in stores."
In a move that captured the public's imagination, Primark opened a menswear concession in Selfridges' Bullring store in Birmingham on 31 October. While Mr Weston said it was early days, he added: "In terms of sales levels, it has been really, really good – beyond our expectations and Selfridges'. Everyone is thrilled."
In Germany, Primark enjoyed its "busiest hour of trading" in its history at the opening of its Hanover store two weeks ago.
A new store is planned for Edinburgh before Christmas, and there are due to be new outlets on Oxford Street, London, and in Berlin next year.
ABF – whose businesses range from sugar production to the Twinings and Ovaltine drinks brands – delivered a 1 per cent rise in pre-tax profits to £835m.Reuse content