Primark Says Sales Recovering After Cool Spring Cuts Growth

(Bloomberg) -- Budget fashion retailer Primark, owned by Associated British Foods Plc, said sales bounced back after a soggy May kept shoppers out of stores.

The company forecast a higher operating margin this year at the unit, which has been reducing markdowns and benefited from a weaker U.S. dollar that makes it cheaper to source garments from Asia.

Low-cost fashion chains including Hennes & Mauritz AB have been trying to sell more garments at full price after increasing competition eroded margins in the industry. Primark is driving sales growth by expanding new stores at a breakneck pace, while comparable sales at existing shops fell.

AB Foods shares were little changed in London Thursday morning. They have gained 20% since the start of the year.

Primark sales rose 4% for the first three quarters of the year, and its margin widened to 11.7% in the first half from 9.8% in the year-earlier period. AB Foods said it expects better purchasing and fewer discounts to help offset a recent recovery in the dollar in the second half.

Outperforming Softness

“For the months from March to June, there’s no doubt the U.K. consumer environment has been softer,” Finance Director John Bason said by phone. “Primark continues to outperform that but we have also seen a bit of softness.” He expects a stronger July due to the improving weather.

Last year had “the feel-good factor,” with the hot weather, the royal wedding and soccer World Cup, which boosted sales for Primark and other retailers, he said.

Primark said a new outlet in Birmingham, England -- its biggest to date -- is showing positive early results. Outfitted with “trend rooms” that showcase the latest looks as well as Harry Potter and Disney areas, it’s designed to be a concept store for the future. The retailer also signed a contract to open a store in Chicago, which analysts said may herald more expansion in the U.S. Midwest.

Bason said the decision to expand in the U.S. was based on strong sales at a store in Brooklyn that Primark opened last year.

The company’s sugar business is showing recovery after it was hurt by weak pricing. AB Foods said it expected further stabilization through the end of the year.

To contact the reporter on this story: Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier

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