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Weak British Pound Boosts Primark Sales in Q3

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Primark

Brexit is hurting some of Britain’s big retailers, but so far it’s proving a boon for Primark.

Associated British Foods (ABF), owner of the fast-fashion chain, released a trading update Thursday for the 40 weeks ended June 18. The company said Primark sales in the most recent quarter benefited from a weak pound and rose 7 percent year-on-year.

Excluding currency effects, sales were still up 7 percent, owing to increased selling space. Eleven new stores opened in the third quarter, bringing Primark’s total to 310 locations worldwide, operating from 12 million square feet. ABF said it was “very encouraged” by early trading at the new stores, particularly its third U.S. location in Danbury, Connecticut.

The quarter wasn’t a total success, however.

“Like-for-like sales in the last 16 weeks were adversely affected by unpredictable weather patterns, with an especially cold April followed by a return to more seasonal weather in May,” ABF admitted.

Thus, operating profit margin in the third quarter was 11.9%, in line with that of the first half.

Looking ahead, ABF said it expects to open two more stores in the U.S. by the end of this financial year, at Willow Grove in greater Philadelphia and Freehold Raceway in New Jersey. It also plans to double the size of its existing location at the Créteil Soleil shopping center in Paris.

On the logistics side, the relocation of Primark’s U.K. warehouse from Magna Park in Leicestershire to Islip in Northamptonshire is expected to be completed by September. Meanwhile, the new distribution center at Roosendaal in the Netherlands will be operational in early 2017.

While the weak pound could cause supply chain costs to increase for some British retailers, ABF said its business is safe—for now.

“ABF is an international business with diverse interests across 48 countries and a business model that, wherever possible, aligns production with the end markets for its products. Primark operates discrete supply chains for its stores in each of the U.K., U.S. and eurozone. We undertake relatively little cross border trading between the U.K. and the rest of the EU,” the company said.

With that being said, ABF admitted that if current exchange rates continue, it could negatively impact the profit margin on Primark’s U.K. sales, currently half the retailer’s turnover.

“We have a strong balance sheet and we remain optimistic for the group’s continued growth, particularly with our plans for Primark’s expansion which remain unchanged,” ABF concluded.

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