Primark well set for Christmas as pricing strategy pays off

LONDON, Nov 7 (Reuters) – British fashion retailer Primark is heading into Christmas in good shape and with trading momentum after its strategy of passing on only limited price rises kept shoppers on its side.
Shares in parent AB Foods (ABF.L) were up 5.7% in morning trading, extending 2023 gains to 41%, after it signalled the retailer’s margin in the new financial year would also benefit from lower material and freight costs.
In its 2022/23 year, Primark’s sales rose 17%, helped by a decision to pass on only part of the input cost increases it faced to consumers through higher prices.
AB Foods CEO George Weston said Primark had raised “a few” prices in some of Primark’s autumn/winter ranges, but lowered them in childrenswear.
“We have no plans to move any prices through the rest of the year,” he told Reuters in an interview.
Echoing comments of rival Next (NXT.L) last week, Weston said Primark’s trading had been strong since the return of autumnal weather in mid-October.
He said shopping for Christmas lines had started early, as consumers spread the cost over more than one pay packet.
Weston expects further growth in Primark’s sales in the 2023/24 year, driven by some 1 million square feet of new retail space and “modest” levels of like-for-like sales growth.
Lower material and freight costs should result in a “substantial recovery” in Primark’s gross margin and overall it expects Primark’s adjusted operating profit margin to recover to over 10% from 8.2% in 2022/23.
Rival H&M (HMb.ST) said in September its goal was to lift its operating margin to 10% next year after it reached 8% in its third quarter.
AB Foods forecast “meaningful progress” for the group as a whole in 2023/24.
It expects a stable performance from its grocery business, which includes Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks.
It forecast a “substantial improvement” in profit in its sugar business, progress in agriculture, and a modest decline in sales and profit in its ingredients division.
“Whilst the environment is still challenging for the consumer, inflationary pressures have eased and there is less volatility than there was 12 months ago. The group is well positioned as a result,” it said.
For the year to Sept. 16 it made an adjusted operating profit, its key profit measure, of 1.51 billion pounds ($1.86 billion), up from 1.44 billion. Revenue rose 16% to 19.75 billion pounds.
The group announced an additional share buyback of 500 million pounds after concluding a programme of the same amount last month. The total dividend, including a special dividend, rose 37%.
($1 = 0.8121 pounds)
Reporting by James Davey; editing by Miral Fahmy and Jason Neely
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