Primark will take a blow to margins this year by absorbing rising input costs, and the retailer is not planning for a drop in cotton prices.
Analysts forecast Primark could take a margin hit of up to £20m this year by following the strategy, which led to an increase in operating profits during the half year to March 5 of only £7m, or 5%, to £151m.
John Bason, finance director of Primark owner Associated British Foods, said margins were in line with 2009 levels: “Primark is on a scale and has the financial strength so we feel we are more than able to sustain that.”
Bason added: “When you look at cotton prices which are affected by prices around the world, by demand and supply, prices have levelled off but whether they will come down I’m not so sure.”
However, he added that the “light at the end of the tunnel” was that by the end of the calendar year, the full impact of the rise in VAT in January and peaking cotton prices would have been absorbed.
First-half sales rose 11% – or 13% at constant currencies – to £1.4bn. Like-for-likes were up 3%. Sales gained momentum after a slow January and February.
Bason confirmed Primark would enter Austria in 2012.