Primark targets US market after profit jump

Primark's figures were stronger than expected
Primark's figures were stronger than expected
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Discount fashion phenomenon Primark is hoping to succeed where the likes of Laura Ashley, Marks & Spencer and Tesco have struggled after unveiling plans to break into the US market.

The retailer, which already has a presence in nine European countries, is aiming to open its first US store, in Boston, towards the end of next year. Further branches are targeted across the north-east of the country.

The expansion drive was announced as Primark, owned by Associated British Foods, reported a 26 per cent jump in operating profits for the first half, with analysts at Shore Capital hailing the performance as “stunning”.

AB Foods, which also owns Kingsmill bread and Twinings Tea, said the retailer – founded in Ireland in 1969 – turned in a profit of £298 million for the 24 weeks to 1 March, on sales 14 per cent higher at almost £2.3 billion.

However, analysts at equities broker Redburn have voiced doubts about whether the pace of expansion can be sustained, arguing that space growth “looks unlikely to accelerate materially”.

The chain has 271 stores covering nearly ten million square feet of selling space across Europe. It recently opened its first stores in France and three new UK stores are in the pipeline for the second half of the year. Chief executive George Weston said: “From its first store opening in Spain in 2006, Primark has demonstrated that its concept can travel.”

He said the chain’s success in entering other markets, such as France and Germany – where its low prices and quick adoption of trends are pulling in cost-conscious shoppers, means it has “earned the right” to have a crack at the US, where many British firms have failed to replicate their success at home.

In September, Tesco admitted defeat after six years of trying to gain a foothold in the US grocery market and sold its Fresh & Easy business, having slashed £1bn from the chain’s value. But last week it announced plans to open seven F&F clothing stores on the US east coast this year with franchise partner Retail Group of America.

Marks & Spencer exited the US eight years ago when it sold its Kings supermarket chain to a consortium of investors, having previously offloaded its Brooks Brothers clothing business, and in 1999 a management buyout team took control of Laura Ashley’s operations in North America.

Weston said: “The reception we received in France has been really remarkable, that’s a market that others have found difficult.

“When we went to Germany, we were advised that they were kings of discounters yet our business there goes from strength to strength, and when we went to Spain, that was the home of fast fashion and what did we have to teach the Spanish about retailing – we’re one of the largest retailers in that country now.”

Shore Capital analyst Darren Shirley said Primark’s figures were stronger than the City had expected, and shares in AB Foods ended the day up 240p, or 8.8 per cent, at 2,962p.

Overall, adjusted pre-tax profits at the group rose 4 per cent to £468m, despite a 2 per cent dip in revenues to £6.2bn amid a “challenging” time for its sugar business, which has been hit by the fall in commodity prices.

Shareholders will receive an interim dividend of 9.7p a share on 4 July, an increase of 4 per cent on last year.