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Margin fears at Primark and Next

Primark has warned that the strong dollar and cost pressures could mean its operating profit margin falls further next year.

Primark, which outperformed the market this week when it reported profits up 17% to £233 million and like-for-like sales up 4% for the year to September 13, admitted that its operating profit margin had dropped from 12.5% to 12.1% during the year and may fall below 12.1% next year.

John Bason, finance director at Primark’s parent company Associated British Foods (ABF), said: “Profit margins [at Primark] could fall next year because of overhead costs and our new distribution centre. It could fall below 12.1% but is unlikely to fall beyond 10%.”

Primark, whose sales rose 21% to £1.9 billion this year, added that it had covered exchange rate risks for spring 09 but said the outlook was uncertain for the latter part of next year.

ABF chief executive George Weston said: “The team will manage margins as always and I believe we’ll remain the best value retailer on the high street.”

Meanwhile, Next, which saw like-for-like sales fall 4.4% over the 14 weeks to November 1, warned in a statement that a strong dollar could put pressure on prices. “We expect upward pressure on input prices in 2009. In spring 09 the effects will be marginal. We anticipate much greater pressure in autumn 09,” the retailer said.

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