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Primark to absorb higher costs from currency fluctuations

Primark has warned currency headwinds will hit margins during the fourth quarter of the year, but said it will work with suppliers to mitigate sourcing cost increases rather than passing them on to customers.

The value retailer sources a lot of its product in US dollars, which have strengthened against euros.

But John Bason, finance director of Primark’s parent company Associated British Foods, said: “We won’t be putting our prices up – we’ll maintain our strategy to offer the best product and value at the lowest prices on the high street.

“[The exchange rate fluctuations] will be similar to the spike in cotton prices a couple of years ago, where we absorbed the increases.”

He said the company would look at its sourcing and work with its suppliers, many of whom operate in other currencies despite selling to Primark in dollars.

“There is some room for movement there,” explained Bason. “Also, as commodities such as crude oil for synthetic fabrics and cotton are going down in price that should filter through to offset some of the increases in costs.”

Primark this week announced sales were up 15% at constant currency and up 12% at actual exchange rates to £2.5bn for the 24 weeks to February 24. Profit was up 8% to £322m.

Like-for-like sales were level with last year, which the retailer attributed to the mild autumn in Europe and the impact of opening new stores in the Netherlands and Germany on existing stores in the region.

Operating profit margin fell by 0.5% to 12.6%, due to a higher level of mark-down.

In the UK, where Primark trades from 6 million sq ft, Bason said the company may be interested in some of the BHS properties that are said to be under review, but it would not be opening many new stores. Locations under consideration include Carlisle.

“The significant growth for Primark is going to come from existing countries that we operate in in continental Europe,” he added.

The retailer will launch its first store in the US at Downtown Crossing in Boston this autumn, followed by one in the King of Prussia mall in Philadelphia before Christmas and six more stores by late 2016.

Bason confirmed the company is working on an update of Primark’s website, although there are no plans to make it transactional.

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