Primark profits soar 35%
Primark today reported an "outstanding" performance for the past year, with operating profits up 35%, but its owner warned that future margins will be squeezed by the soaring costs of cotton and transport.
Associated British Foods (ABF) said sales at the fast-fashion retailer were up 18% to £2.7bn (€3.14bn) in the year to September 18, while operating profits hit £341m (€396.8m), helped by 13 new stores, including its first in Belgium.
Primark will continue to open new stores, particularly in Spain where growth has been strong.
The strong growth helped its parent company to increase sales by 10% to £10.2bn (€11.87bn) while adjusted profit before tax increased 26% to £825m (€960.1m).
ABF makes Kingsmill bread, which grew market share with the launch of the Little Big Loaf a year ago, but warned that margins are due to be squeezed by the rising cost of wheat.
The company also makes Silver Spoon sugar, the Patak's spicy food range and Twinings tea.
Chief executive George Weston said the soaring cost of commodities - mainly sugar, cotton and wheat - was a mixed blessing for AB Foods.
The near doubling in the cost of cotton in recent months will reduce net margins at Primark back down from the 12.5% they reached this year, although they are not expected to fall back to the 10.9% level from a year ago.
Primark would remain the cheapest on the high street "no matter what it takes", he added.
The rising cost of wheat, which has increased by about 50% in recent months, will erode margins of Kingsmill bread although the group is in negotiations with supermarkets to pass on the price hikes.
"In the UK we are negotiating higher prices now although we have been paying higher wheat costs for a couple of months already," he said.
But the company's grain wholesale and animal feed business should benefit from the increase in price.
The rising cost of sugar, which is approaching a 30-year high on the back of strong demand from China, was also benefiting AB Foods because it was passing on the price hikes to consumers in China, he added.
