The squeeze on consumers will lessen in 2012, directors of Primark’s parent company believe.
John Bason, finance director at Associated British Food, said he expected pressure to ease on the hard-pressed consumer this year.
He said: “We’ll see VAT annualising and a drop in commodity prices and inflationary pressure this year.”
Bason said Primark would start to see the benefits of the decline in input costs in its second half. Its operating profits were hit last year, dropping 8% to £309m, after it absorbed a rise in raw material costs.
The comments came as the value fashion giant revealed a 16% surge in sales in its first quarter.
Bason said the sales jump in the 16 weeks to January 7, which was revealed a day after rival Peacocks collapsed into administration, was down to both its “value credentials and fashionability”.
Primark will continue to push ahead with its expansion into continental Europe, despite the crisis in the eurozone.
Bason said: “We don’t think it will have much impact. Established businesses will be affected but Primark is new to the eurozone so still has something to offer.”
Panmure Gordon analyst Graham Jones said the sales leap was down to “market-beating” like-for-like growth, which he estimated rose 3%, as well as its new store openings. The retailer opened nine new stores over the period, seven of which were in continental Europe, which now accounts for one third of Primark sales, according to Bason.
Jones expects Primark’s EBITA to jump 10% to £339m this year and it is his top large-cap pick of the year.
Meanwhile, the retailer is facing the prospect of a strike in its Northern Irish stores after staff overwhelmingly backed industrial action in protest at its attempt to impose a second year of pay freezes.
Usdaw representatives, who speak for 641 workers in Primark’s eight Northern Irish stores, will meet next week to decide on the form and timing of the action.