LONDON (Reuters) - Clothing retailer Primark returned to underlying sales growth for the first time in 18 months, with low prices and warm weather driving a strong performance in Britain in its latest quarter, owner Associated British Foods (ABF.L) said on Thursday.
Primark’s performance confounds fears that a squeeze in British consumers’ spending power could dent demand.
AB Foods, which also has major sugar, grocery, agriculture and ingredients businesses, said Primark’s better than expected third quarter performance meant the group’s outlook for the year to mid-September 2017 had “marginally improved”.
The statement sent its shares as much as 6 percent higher, making it the FTSE 100 index’s biggest riser.
Primark’s total sales increased 15 percent at constant exchange rates in the 16 weeks to June 24, its fiscal third quarter, and were up 21 percent at actual exchange rates.
Finance Director John Bason said Primark’s overall like-for-like sales were positive in the quarter, having been flat in the first half.
“The UK is very strong. It’s not a bit of an improvement, it’s a big improvement,” he told Reuters, though he declined to give a specific figure.
“It’s a combination of factors but first and foremost the product and particularly the stores are looking great at the moment,” he said, noting the contribution of a later Easter holiday this year and better weather.
Analysts at Credit Suisse, AB Foods’ house broker, estimated UK like-for-like sales growth at 6 percent, versus 2 percent in the first half.
The UK accounts for about half of Primark’s business.
British consumers have been hit by a sharp rise in inflation, caused in large part by the fall in the value of the pound since Britain’s vote to leave the European Union, and by a slowdown in wages growth. The housing market is also cooling.
Marks & Spencer (MKS.L) and Next (NXT.L), Britain’s two biggest clothing retailers, have both said they are suffering from a broad slowdown in spending on clothing and footwear that dates back to late 2015.
Primark, which is at the budget end of the clothing market, has said it has not raised prices to offset the impact of the weaker pound.
“I have said over the years that Primark has grown in tougher economic times as well as good economic times,” said Bason.
“Primark has maintained its price discipline and I think we’ve certainly gained from that,” he added.
AB Foods said it now expected Primark’s full-year operating profit margin to be in line with the first half’s 10 percent, having previously forecast a decline.
Credit Suisse raised its 2016-17 EPS estimate for the group by 1 percent to 122 pence, up from 106.2 pence in 2015-16, noting the strong trading at Primark UK was offset in part by pressure on grocery margins.
AB Foods said third quarter group revenue growth was 13 percent at constant currency and 20 percent at actual exchange rates.
Shares in the group, majority owned by the family of Chief Executive George Weston, were up 126 pence at 3,049 pence at 0910 GMT, valuing the business at 24 billion pounds.
Editing by Keith Weir