The UK’s vote to leave the European Union could have both positive and negative effects on profits, Primark’s owner Associated British Foods said today.
In a trading update for the 40 weeks to June 18, ABF noted that the weakening of the pound had already boosted Primark’s sales, but warned it could have a negative effect on the UK business’s margins next year.
Primark’s sales were up 7% year on year at constant currency and on a reported basis during the 40-week period, as it continued to increase its selling space and, latterly, benefited from sterling’s weakness.
However, ABF said Primark’s like-for-like sales over the past 16 weeks have been adversely affected by unpredictable weather patterns. It did not go into more detail.
Primark’s operating profit margin in the third quarter was 11.9%, in line with that of the first half.
Retail selling space has increased by 0.8 million sq ft to 12 million sq ft since the beginning of the financial year. At June 18, it had 310 stores.
Eleven stores opened during the third quarter, including in Broughton Park near Chester, Birmingham Fort, and Monks Cross in York.
Primark expects to add a further net 0.3 million sq ft of selling space by the end of the financial year, including two more stores in the US, in Philadelphia and New Jersey.
The relocation of its UK warehouse capacity from Magna Park to Islip in Northamptonshire is expected to be completed by September.
ABF’s group revenue for the 40 weeks ended June 18 was 3% ahead of the same period last year at constant currency and 1% ahead at actual exchange rates.
It said the boost from the weak pound had improved its outlook for the financial year. It no longer expects a decline in adjusted earnings per share for the full year.
Looking forward, the company said: “The UK referendum decision to leave the EU has created uncertainty in the business environment and financial markets.
“Sterling has weakened significantly since the referendum vote. If current exchange rates continue there will be a translation benefit for the remainder of this financial year.
“In our next financial year, these rates would have both positive and negative effects on profit. There would be an adverse transactional effect on the profit margin on Primark’s UK sales, currently half of its turnover, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK, which last year were some 50% of the total.
“We have a strong balance sheet and we remain optimistic for the group’s continued growth, particularly with our plans for Primark’s expansion which remain unchanged.”