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Primark boosted by falling cotton prices and minimal markdowns

Falling cotton prices and minimal markdowns boosted Primark’s “exceptional” first half results, parent company Associated British Foods has said.

The value retailer was the strongest performing part of the multi-sector group, with total retail revenues now accounting for the largest component of the business, up to £1.99bn for the 24 weeks to 2 March from £1.62m last year.

Adjusted operating profits rose 55% from £154m to £238m, while margins increased from 9.5% last year to 11.5%, with finance director John Bason describing its return on capital expenditure (ROCE) of 26% as “outstanding”.  

ABF’s chief executive George Weston told analysts that the drop in cotton prices had helped improve the bottom line, although noted that the weakened dollar had less impact than expected.

Overall strength of trading, however, gave the business a real boost.

“We had excellent autumn [12] ranges in store, and we are benefited by comparison with a weak start to the prior year, as September 2011 was very hot. In this year, we kicked off well with cold weather and there was no snow to keep people off the high streets,” he said.

Discounting

“We had a good Christmas in 2011, so to see good store comparisons on that showed us just what progress we were making.”

Weston said trading had “slowed inevitably” since the start of the year as a result of poorer weather conditions, but added he was “quite content”.

“We marked down very little in autumn 12 because we sold it all at full price,” Weston said.

International

Primark has also seen strong international growth, with Germany highlighted in particular. “We have seen very strong like-for-like growth in those big stores,” said Weston. “Northern Europe has been remarkably strong.”

Store openings

Although Weston confirmed that the pace of store openings would slow for the rest of the year, looking ahead to 2014 it would return to an “exhilarating” level once again.

“We will open comfortably north of one million sq ft, skewed to the European markets we are in – Germany, Netherlands and Spain more than Austria,” he said.

Weston also confirmed plans to launch in France in the next eight-to-10 months.

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