Profit margin set to decline as a result of weak sterling, Primark owner says
Primark owner Associated British Foods is pencilling in a robust rise in half-year profits, but warned margins at the retail chain would take a knock from the weak pound.
The group said UK like-for-like sales at Primark in the six months to March are expected to rise 2%, but come in flat across the board.
Total sales at Primark are forecast to increase 11% at constant currency, driven by more retail space, and 21% ahead at actual exchange rates.
But ABF said in a trading update margins will take a hit from the collapse in the value of the pound.
It said: "As forecast, the operating profit margin in the first half will decline, mainly reflecting the strength of the US dollar on input costs."
"The full effect of sterling weakness against the US dollar on Primark's purchases will result in a greater margin decline in the second half because our currency hedges were at more advantageous exchange rates in the first half."
Sterling has fallen 16% versus the US dollar since the referendum and 10% against the euro, driving up the cost of imports for British firms.
ABF said it is pressing ahead with domestic and international expansion at the budget retailer, with stores in Uxbridge, Belgium, Spain and the US slated to open over the next three months.
The firm, which also owns Twinings tea and Kingsmill bread, said it expects "excellent progress" in group profits over the period and its outlook for the full year is unchanged.
In November, chief executive George Weston said the pound's fall will bring "benefits and challenges" to the group.
ABF is hoping for a boost to the value of overseas group earnings, which account for around half of the group's total.