Primark Owner's Shares Fall as Hot Summer Hits Apparel Sales

(Bloomberg) -- Shares of Associated British Foods Plc, owner of the Primark clothing chain, fell after the company predicted a decline in comparable sales at the retailer.

Primark’s like-for-like sales will decline by 2 percent in the year ending Saturday, the company said Monday, citing Europe’s unusually hot summer weather. The apparel stores are expected to post gains overall, but that’s only because the company is opening new outlets.

“It is our normal assumption that we get a little bit of like-for-like growth because Primark as a concept is still very much growing in all of our markets,” finance director John Bason said in an interview. “So this is a bit of a knock.”

U.K. rival Next Plc on Aug. 1 said that sales for the six months through July rose 4.5 percent, with double-digit growth online more than offsetting declining store sales. Primark does not sell online. Next also said some of its gain was due to consumers buying seasonal clothes earlier than usual in a scorching summer across large parts of Europe, and that it will miss out on those sales later this year.

Primark will add 1 million square feet of selling space next year by opening 14 new stores, AB Foods said in a statement, adding about 7 percent to existing floor space. It added 15 stores this year for an extra 900,000 square feet of space, taking its store count to 360. After increasing to about 11 percent in the year that’s about to end, the company’s margin won’t further expand next year, the executive said.

The shares declined as much as 4.4 percent in London trading to their lowest in almost five years. The company’s share price has been closely tied to sugar prices, which have fallen on excess supply.

Primark Owner's Shares Fall as Hot Summer Hits Apparel Sales

If sugar prices remain at current levels, profit will get hit next year, the company said Monday. The company realized an average selling price “in the low 400s” this year, Bason said in a reference to the commodity’s quotation in euros per metric ton, and that will likely decline by a double-digit percent rate to be “in the 300s.”

Still, prices should eventually recover because the European industry is losing money at current levels. “When the whole of an industry loses money, then normally something changes,” Bason said.

The executive also said:

  • Primark’s market share in the U.K. this year grew to about 17% in volume terms in apparel, even including online
  • Primark has “ambition to grow in eastern Europe” and will open its first store in Ljubljana, Slovenia, next year
  • Other eastern European countries may follow the year after
  • Home delivery “highly unlikely” for Primark anytime soon

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