April 17, 2018 / 10:06 AM / 5 months ago

Primark owner encouraged by first U.S. stores

LONDON (Reuters) - The first Primark discount clothes stores in the United States are producing encouraging results, but owner Associated British Foods (ABF.L) needs to learn more about the market before considering a major roll-out, it said on Tuesday.

FILE PHOTO: Bus passengers pass a Primark store in central London, Britain, November 3, 2017. REUTERS/Toby Melville/File Photo

Primark opened its first U.S. store in downtown Boston in 2015 and currently trades from eight stores. A ninth will open in Brooklyn this year and a tenth in Florida in 2019.

Analysts see Primark’s expansion as the critical driver of AB Foods’ prospects and consider the United States a potential game changer for the group.

“We’re quietly encouraged by what we’re seeing so far,” Chief Executive George Weston told Reuters. “We continue to learn ... but it’s still very early days.”

Weston said the Florida store in Sawgrass Mills would provide the opportunity to trade in a different type of retail environment, in both mall format and geographic location, from its existing stores.

FILE PHOTO: The exterior of a Primark store is seen in central London, Britain, November 3, 2017. REUTERS/Toby Melville/File Photo

“It’s a great opportunity to test that market in a mall which is actually the busiest tourist attraction in the whole state after Disney World,” he said, noting 45 million people visit every year.

Primark, which trades from 352 stores in 12 countries, accounts for about half of AB Foods’ revenue and profit.

Shares in the group, which also makes Silver Spoon sugar, Twinings tea and Ryvita crispbread, rose as much as 4.5 percent after it met guidance with a 1 percent fall in first-half profit and maintained its outlook for the full 2017-18 year.

It forecast a second-half acceleration in profit growth at Primark, due to better margins and continued profit growth from its grocery, ingredients and agriculture businesses, offsetting an expected decline in profit from its sugar business.

Primark’s margin would benefit from the recent weakness of the U.S dollar, given the fashion chain sources the majority of its goods in dollars from Asia.

On Tuesday, sterling hit its highest level versus the dollar since Britain’s vote to leave the European Union in June 2016.

AB Foods made adjusted operating profit of 648 million pounds ($929 million) in the half year to March 3. Group revenue rose 2 percent to 7.42 billion pounds.

On a constant currency basis, sales and profit growth was achieved in all of the divisions, other than sugar, where the 24 percent profit reduction was as expected.

In January, AB Foods warned sugar profits would fall more than previously forecast in 2017-18 because of lower prices across the European Union.

The group forecast “progress” in full year adjusted operating profit and adjusted earnings per share (EPS).

Shares in the group, down 23 percent over the last six months, were up 99 pence at 2,682 pence at 1000 GMT, valuing the business at about 21 billion pounds.

The group is majority-owned by Weston’s family.

“We believe ... Primark, remains a best-in-class clothing discounter with strong space growth driving market share gains,” said RBC Europe analyst Richard Chamberlain.

Editing by Paul Sandle and Mark Potter

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