Sales at fast fashion giant Primark have surged in its current year, but its owner has warned of a drop in profits next year amid rising inflation.
In a pre-close update for the year ending September 17, Associated British Foods (ABF) said it expects sales at Primark to jump 40 percent to 7.7 billion pounds on a constant currency basis.
It said the strong results reflect the end of Covid restrictions compared to the prior year period and the resumption of “more normal customer behaviour”.
Primark was hit particularly hard during the pandemic as its store-only strategy meant it couldn’t offset lost sales during lockdown through online channels.
But that has improved since economies have reopened, with UK like-for-like sales expected to be up 13 percent year-over-year, achieving close to pre-Covid levels.
However, the strong performance in the UK was offset by weaker than expected like-for-like sales in Continental Europe in the fourth quarter, which are expected to be up 1 percent.
Overall Q4 like-for-like sales are expected to be 7 percent ahead of last year.
Primark expects full-year operating profit margin of 9.6 percent, with second half operating profit margin of 8 percent.
ABF warns on profit
ABF said it now expects group adjusted operating profit and adjusted earnings per share next year to be lower than the current financial year as consumers cut back on spending amid rising inflation.
It also said profit would be negatively impacted by a stronger dollar against the pound and euro.
For the next financial year, operating profit margin at Primark is also now expected to be lower than the second half of this financial year.
Primark said to mitigate current pressures it “plans to improve store labour efficiency and deliver lower operating costs”.
But it added it has “decided not to implement further price increases next year beyond those already actioned and planned”.