Company points to exceptional performance from discount fashion chain as store expansion continues
Retail sales may have dipped last month and the high street bloodbath may have seen off the likes of JJB and Comet, but discount clothing group Primark goes from strength to strength.
The chain's parent Associated British Foods said Primark's profits had jumped 15% last year to £356m on revenues up a similar amount to £3.5bn. Margins held steady at 10.2% despite cost pressures from rises in the price of raw materials such as cotton. Primark's brand of the latest fashions at bargain prices has seen it thrive when others falter.
It opened 19 new stores including one at the other end of London's Oxford Street to its flagship Marble Arch outlet, and one on Princes Street in Edinburgh. It has also expanded abroad including in 11 in Iberia and five in northern Europe.
Overall, ABF's revenues rose 11% to £12.3bn, with profit before tax up 17% to £974m. Its sugar business grew strongly, especially in Europe while Twinings, Ryvita and Silver Spoon all lifted the grocery business, although the division was held back by restructuring charges as it cut costs in Australia and at Allied Bakeries. Chief executive George Weston said:
These are very good results for the group and include exceptional performances from AB Sugar and Primark. Global economic uncertainty remains but we have opportunities for further investment and the strength of the group balance sheet and a strong cash flow will enable us to pursue them with confidence.
More specifically, the company said it expected a reduction in profit from AB Sugar due to lower EU production, but this would be more than offset by further growth at Primark and some recovery in the grocery business. The note of caution has helped push the company's shares 7p lower to £13.59. In a hold note Martin Deboo of Investec said:
The shares have run strongly into the event against which management are guiding to first half-weighted 'progress' in 2013. Against this consensus is looking for 8% earnings per share growth and us 5%, reflecting some caution on sugars which is echoed in the outlook statement.
But Panmure Gordon raised its target price from £13, with analyst Graham Jones saying:
While we expect sugar profits to fall back somewhat from the exceptional levels reached in 2012, we still expect the group to deliver a healthy 5.5% earnings per share growth driven by Primark's continued strong expansion programme and a recovery of profits in grocery. Our sum-of-the-parts valuation now indicates fair value to £14.50.
Elsewhere the market is moving higher despite the uncertainties of the US election and the continuing worries about Greece, Spain and the other troubled members of the eurozone. The FTSE 100 is currentlyi 23.42 points higher at 5862.48 despite poor UK industrial production figures.
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