Value fashion retailer Primark saw profits grow five per cent year-on-year in the 24 weeks to March 5th, according to an interim results statement published today by parent company Associated British Foods (ABF).
Profits increased by 35 per cent in 2010, and the slowdown since the turn of the year highlights the major impact rising cotton costs and falling consumer confidence has had on the business in the first half of the 2011 financial year.
The retailer said that UK trading weakened at the turn of the year, around the same time that VAT increased from 17.5 to 20 per cent, but has since returned to pleasing levels.
Although there has been an improvement in trading, with like-for-like sales up three per cent year-on-year and revenue increasing 11 per cent to £1,406 million in the six-month period, Primark expects trading conditions to remain tough in 2011.
CEO of ABF George Weston commented: “We expect to reduce margins further in the second half of the year.
“This will reflect a full period of the VAT increase, higher cotton prices and the likelihood of continued weakness in UK consumer demand.
“This decision to invest in margin has been made against a backdrop of robust current and expected sales growth.”
By the end of the current financial year Primark expects to have 7.1 million sq ft of selling space, with a number of new openings planned across Europe.
Ten new stores were opened in H1 including six in the UK - five of which were ex-Bhs stores - while a further six outlets are due to open in H2, including three in the UK.
Retail analysts from investment bank Espirito Santo suggest that the ABF update will sound “a further note of caution on the UK retail sector” regarding the impact of rising cotton prices.
A statement from the analysts said: “Concern was running high just a few weeks ago, but trading updates from Next, Marks & Spencer and Debenhams soothed these concerns somewhat as it seemed as though the companies were coping well with the situation, and the impact of high cotton prices was not as bad as feared.”