Primark will keep prices low despite Brexit cost pressure
Primark has promised customers it will not increase its prices, despite seeing costs jump due to Brexit.
John Bason, finance director at the value fashion chain’s owner Associated British Foods (ABF), said the company would take a hit to profits rather than pass price increases onto its shoppers.
“Consumers can comfortably expect no price increases. We are managing the decline in the pound and we accept it will affect margin and take that on board ourselves,” he told the PA news agency.
Bason added Primark had a “history” of keeping prices low and would continue to shield its customers while it could. The company said that the recent collapse in the value of the pound due to Brexit uncertainty, alongside the strong dollar, will “increase the cost of goods for next year”.
However, Primark also pointed out that, because two thirds of its profit is earned outside the UK, the whole group actually expects to gain £10 million through the weaker pound.
ABF said on Monday that profits for the year to 14 September were expected to be in line with expectations, as “strong performances” for Primark and its grocery arm offset a decline in its sugar business.
Full-year sales at Primark are expected to increase by 4% compared to the previous year, driven by 14 new store openings.
Like-for-like sales, which strip out the boost from new stores, are predicted to be down -2% for the period due to the “weak UK market”.
“Primark has performed well in the UK where sales in the total clothing, footwear and accessories market have been weak,” the company said, as it revealed a -1% decline in like-for-like UK sales.
ABF added that it would look to mitigate Brexit-related cost increases by reducing material prices and improved buying but expects “reduced margin”.
Bason also said that the firm would have “stern negotiations” with landlords when leases on Primark properties come for renewal, to reduce rents “in line with UK competitors” and push costs lower.
Senior market analyst at www.asktraders.com Steve Miley said the company was well placed to manage the UK's departure from the EU and any "unforeseen" issues that may raise.
"Primark continues to deliver on sales growth driven by increased selling space with an expected 4% growth in constant currency. Like for like sales are expected to record -2% decrease due to unfavourable weather. The impact of new stores opened on the sales growth is prevalent in the UK where like for like sales have recorded a -1% contraction whilst the top line figure shows a 3% expansion.
"The European and US divisions continue to grow fuelled by organic growth as well as increase in selling space with 14 stores being opened over the year. The expansion will continue into the next year with plans to add 1 million square feet of additional selling space in 19 new stores in France, Spain, Netherlands, Poland and UK. The strategy of delivering 'Amazing fashion' at 'Amazing prices' has paid out for the company as a whole in an environment of increasing competition on the online space.
"With two thirds of the revenue generated outside the UK the company has announced the completion of the Brexit preparations and has put the contingency plans in place in case of disruptions caused by Great Britain exiting the EU. The cash levels held at the end of the period will allow the company to navigate unforeseen events caused by the departure from the European block," Miley said.
Shares in ABF slipped 3.2% to 2,279p in early trading.