Budget fashion chain Primark has seen sales growth plummet as the retailer became the latest to reveal a hit from the blast of cold weather.
Like-for-like sales rose three per cent in the six months to March, a sharp drop on the 10 per cent growth seen in the same period last year, Associated British Foods, Primark’s owner, revealed on Tuesday.
It blamed an unusually warm October and the fierce Beast from the East in March for poor trading in the first half of its year.
Unseasonable weather has hit most retailers, with Primark owner AB Foods the latest to admit sales growth was badly hit by the Beast from the East
Overall European sales at Primark fell 1.5 per cent in the period, but AB Foods insisted the UK performance was ‘remarkable’ and forecast profit growth would boom in the second half of the year.
Its share price rose 2.5 per cent on Tuesday to 2,649p – gaining some ground after seeing the price drop 23 per cent over the last six months.
Underlying operating profits rose four per cent at Primark to £341 million over the first six months of the year despite the sales woes and impact of the weak pound.
Chief executive George Weston said: ‘Our UK performance was remarkable in the circumstances and delivered a strong increase in our share of the total clothing market.
‘Looking ahead we expect this profit growth to accelerate with the continuation of our retail selling space expansion and an improvement in margin following the recent strengthening of sterling against the US dollar.’
The group opened another seven Primark stores in the first half, including at Charlton and Staines in the UK.
Across the wider AB Food group – which owns Twinings tea and Kingsmill bread – underlying half-year pre-tax profits lifted one per cent to £628 million as an earnings drop at its sugar arm weighed on results.
Fashion and groceries helped protect AB Food’s earnings from pressures on its sugar business
Bottom line pre-tax profits slumped 30 per cent to £603 million after figures from a year earlier were boosted by a £255 million gain from the sale of its US herbs and spices business and south China cane sugar operations.
Grocery underlying earnings rose nine per cent to £159 million at constant exchange rates in the first half.
Richard Hunter, head of markets at interactive investor, said the strong performance of AB Foods grocery and fashion arm had done a lot to offset the pressures on its sugar business.
However, he added the troubles would continue for the group.
‘Less positively, there has been a general markdown in clothing retailers of late, whilst the more recent strength of sterling will tend to work against AB Foods, where 63 per cent of revenues come from abroad,’ he said.
Hunter said the stock remained a strong buy and added: ‘Pressure on the sugar business is more than likely to persist, but at 13 per cent of revenues this shortfall should be containable.
‘Meanwhile, although the dividend has been nudged higher, a prospective yield of 1.7 per cent is pedestrian.’
George Salmon, an equity analyst at stockbroker Hargreaves Lansdown, said: ‘What’s impressive in these results is management’s assertion that profitability in the all-important retail division will rise in the second half.
‘Part of this is due to the benefit of a weaker dollar, but Primark has managed its stock well and improved its buying positions too.’