Primark’s owner has increased its profit forecast for the year, despite the squeeze on household budgets. Sales at the discount retailer were boosted by higher prices and a strong demand for summer clothing despite the squeeze.
Associated British Foods (which also has a grocery division and an ingredients division) said on Tuesday that the like-for-like sale at Primark was up 7 percent in the three-month period ending May 27. This is a sign of consumer spending being resilient despite the cost-of-living crisis.
Eoin Tong, ABF’s Finance Director said: “People have shown more resilience than they would have expected at the end of last year.”
Primark stores have seen more customers in recent years due to the warmer weather and their desire to find bargains. This is despite the fact that Primark raised prices to offset rising costs last year.
The demand for summer festival clothing has led to an increase in the volume of clothes sold.
Tonge said, “Consumers are still looking for value in these difficult times.” Tonge said that Primark did not plan to raise prices any further, as fabric costs and shipping rates had decreased.
The retailer sold more beauty and health products than expected. This contributed to an increase in overall sales of 16 percent year-on-year to £4.7bn.
ABF which owns Twinings Tea and Ovaltine Drinks, expects its adjusted operating profit will be slightly higher than the £1.4bn that it made in 2017.
Last week, rival Next said that the warmer weather and wage hikes encouraged customers to spend more money on their summer wardrobes. It also raised its profit forecast. Zara’s owner Inditex, as well as H&M, have also reported a good start to summer.
The UK has been plagued by high food prices and a stubbornly high rate of inflation. On Tuesday, MPs will examine supermarkets to make sure they’re not profiting from the higher prices.
ABF’s Food Division also performed well. Sales in the grocery division grew by 13 per cent, to PS1bn. This was due to price increases implemented earlier in the year to offset rising input costs.
Richard Chamberlain of RBC Capital Markets said that he expects “a continued healthy sales trend over the short-term, given the ongoing recovery trends in store-based retailing with a significant [profit] improvement for Primark”.
As it doesn’t sell online, the chain is one of Europe’s largest clothing retailers. This summer, it will expand a trial of click and collect to more UK stores. The focus is on children’s items.
Early morning trading saw shares down by 0.8 percent.
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