Primark Plans Expansion as Operating Profit Beats Views

LONDON—Primark owner Associated British Foods PLC said it plans to expand the fast-fashion retailer's selling space across all its major markets, including the U.S., as it reported annual operating profit for the chain that beat expectations.

The company said awareness of the Primark brand has grown in the U.S. It launched there last year in Boston and now has five stores, most recently opening in regional malls in Connecticut, New Jersey and Pennsylvania. A spokeswoman said Primark plans to open three new U.S. stores, in Burlington, Mass., Braintree, Mass., and New York's Staten Island borough, and will expand its Boston store by 31%, to 92,400 square feet.

The U.S. expansion is part of a steady rollout of new stores by Primark, which now has stores in nine countries outside the U.K. and Ireland and doesn't sell clothing online. Overall, the company said it plans to open a further 1.3 million square feet of space in fiscal 2017, an acceleration from last year, when it opened 1.2 million square feet.

"That new store openings are still greeted with enthusiasm by our customers says much for the capability of our buyers and merchandisers, who ensure that Primark remains at the forefront of fashion, but is also the result of our store designers making Primark an attractive and fun place to shop," said ABF Chairman Charles Sinclair.

For the 53 weeks ended Sept. 17, ABF reported pretax profit of £ 1.04 billion ($1.29 billion) on revenue of £ 13.39 billion, up from £ 707 million on revenue of £ 12.80 billion a year earlier.

Primark's sales climbed 9% at constant currency, driven by store openings. Same-store sales declined 2%, which the company blamed on unseasonable weather and cautious consumer sentiment in key markets like the U.K. and Germany. Adjusted operating profit ticked up to £ 689 million from £ 673 million, although the margin dropped to 11.6% from 12.6%.

ABF warned that following the pound's slide in the wake of Brexit, Primark's operating margins will be squeezed because the company pays for much of the clothing it sources from Asia in dollars. Still, Primark, whose success so far has hinged on its ability to offer bargain-basement prices, said it remains committed to maintaining its price leadership.

Primark's plans contrast with those of fellow retailer Marks & Spencer Group PLC, which on Tuesday reported a sharp drop in half-year underlying profit and said it would exit 10 international markets—including China and Belgium—and close 60 of its clothing and home stores in the U.K. As customers increasingly shop online, retailers from supermarkets to apparel chains have struggled to find the right number of physical stores to maximize profitability.

M&S—a U.K. retail mainstay—said underlying pretax profit, which strips out one-time charges, fell 19% to £ 231.1 million for the six months ended Oct. 1. M&S's performance has been mixed for a string of quarters now, with higher-performing food stores and a struggling clothing and home business.

The company said it would close 60 of its clothing and home stores in the U.K. over the next five years but would continue to increase its food stores.

"This isn't about removing or reducing our clothing sales, it's about making sure we have the right estate for how our customers shop," said M&S Chief Executive Steve Rowe on a call with reporters.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

November 08, 2016 07:35 ET (12:35 GMT)

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