Primark sales boost in spite of rising costs
Associated British Foods reported double-digit sales growth at Primark over the key Christmas trading period but again warned the retailer's profits would be squeezed by the rise in cotton prices.
Sales at the value retailer increased by 13% in the 16 weeks to January 8, which was in line with the management's expectations and was helped by opening 10 new stores in the period.
Its operating margin increased over the period but was set to come under pressure as it absorbed some of the cost of the soaring price of cotton and the rise in VAT as part of its commitment to compete with high street rivals.
AB Foods also reported that its Kingsmill bread division grew its market share, helping overall sales increase 7% in the period.
It also warned the recent weather conditions had impaired the quality of its sugar beet crop in the UK, which could reduce profits at its sugar division.
Primark opened six new stores in the UK in the period, five of which are in former Bhs shops.
It now has 214 stores in the UK, Ireland, Spain, Germany, Portugal, the Netherlands and Belgium.
AB Foods said Primark's like-for-like sales, which strips out sales from newly opened stores, had shown "good" growth but did not provide an exact figure. Analysts estimated that like-for-like sales increased by about 4% or 5%.
AB Foods' grocery division, which includes Ovaltine, Twinings tea, Kingsmill and the Patak's spicy food range, is also facing rising commodity costs, with wheat, corn, spices and oils in particular having become more expensive.
Shares in AB Foods were down 3% following the update.