Primark has promised customers it will not raise prices despite a rise in costs from the falling pound.
The owner of the budget fashion retailer, Associated British Foods (ABF), said on Monday that Primark remains on course to report growing annual sales and profits, in contrast to many of its high street rivals which have been struggling in tough trading conditions.
John Bason, ABF’s finance director, told the PA news agency that Primark’s costs will rise this year a result of a Brexit hit to the pound while the dollar has remained strong.
But the group as a whole will gain around £10m from currency movements because two-thirds of its profit is made outside the UK in currencies that have strengthened against the pound.
“Consumers can comfortably expect no price increases,” Mr Bason said.
“We are managing the decline in the pound and we accept it will affect margin and take that on board ourselves.“
While margins are under pressure, the pound’s fall has delivered a boost to Primark’s London shops – including its flagship Oxford Street branch – where footfall has risen as tourists take advantage of cheaper goods.
Mr Bason added: “London stores are trading really well. Brexit is not a big deal for Primark, it is more of an event for other people.”
ABF also said it has “completed all practical preparations” for Brexit and has contingency plans in place for potential disruption.
ABF expects full-year sales at Primark to be 4 per cent up on last year, but much of the growth is due to additional stores being opened.
Like-for-like sales, which strip out that effect, are set to fall 2 per cent globally and 1 per cent in the UK, the company said. ABF’s shares fell 1.8 per cent on Monday after the trading update. Final results will be reported on 5 November.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, cautioned that Primark needs to make sure it does not overstretch itself.
“The group needs to strike a fine balance between keeping sales moving and opening too many new stores,” she said.
“Over the next financial year, 1 million square feet of new space is to be added to the store estate.
“Opening new shops is certainly a tactic that has worked for ABF and continues to offset the decline in like-for-like performance. However, the thing to remember is it can’t follow this method forever.”
