Why Primark is bucking the high street gloom

Primark owner Associated British Foods has hailed a “resilient” year after being boosted by the continued expansion of the high street fashion store and robust grocery sales.

The companys flagship central Edinburgh store is now one of the busiest on Princes Street. Picture: Lisa Ferguson

Increased profits at Primark and in the group’s grocery division helped to offset declining earnings from ABF’s sugar production business.

Nevertheless, statutory pre-tax profits slipped 8 per cent to £1.17 billion for the year to 14 September as it was hit by losses caused by the sale or closure of businesses. Adjusted pre-tax profits for the year, which strip out exceptional items, nudged up 2 per cent to £1.4bn.

ABF saw revenues increase by 2 per cent to £15.8bn for the year, largely driven by Primark which continued to shrug off the malaise affecting many of its high street retail rivals.

The chain has been opening new sites in the UK, mainland Europe and even in the US. Picture: John Devlin

The firm hailed a “year of strong progress” for Primark, which increased revenues by 4 per cent to £7.79bn after adding a further 14 stores to its portfolio across the UK and mainland Europe. With its cut-price in-store clothing, the chain is far less reliant on the internet than many of its peers.

John Bason, finance director at ABF, said Primark has continued to be a "success story" for the retail sector and has proved that people will still shop in high streets.

He said: "We are prepared for a really strong Christmas. A lot has been said about the state of retail and a lack of consumer confidence but we've seen 4 per cent growth and that is continuing. We have new gifting ranges for Christmas this year and have seen a really strong response for product launches."

Strengths

Richard Hunter, head of markets at Interactive Investor, said: "AB Foods is playing to its strengths, with its two largest units doing most of the heavy lifting.

"However, it is the retail unit, which contains Primark, where the most striking opportunities lie. The unit accounts for half of overall group revenues. The company has a strong pipeline of stores to come, particularly in the likes of France and Spain, and further store openings in the US reflect a market which AB Foods is particularly keen to crack.

"The early signs, such as in the Brooklyn store, are extremely promising and if the company can gain traction as new stores roll out, the potential is enormous."

He added: "The outlook from the company is positive and should be bolstered by its expansion plans. While AB Foods is not dismissive of Brexit implications, it makes the point that for the most part its supply chains are discrete and the relative lack of cross-border trading provide some insulation."

Chris Field, independent retail analyst and chairman of Retail Connections, said: "Primark continues to rewrite the retail rule book and its store-focused retail strategy continues to succeed where so many currently are failing in the context of online competition.

"Primark’s results are proof to the naysayers, who are all too quick to sound the death knell for physical bricks-and-mortar stores, that with the right product proposition, the right price and the right store format that there is a future for retail on the high street."