Primark to open stores in the US, as owner's H1 profits riseWednesday 23 April 2014 11.55
Primark, the fast-growing clothing chain owned by Associated British Foods, is to enter the US, becoming the latest British retailer to attempt to crack the US market after success in Europe.
Shares in AB Foods rose over 9% in London trade on the back of the US initiative, a small rise in first half profit and reiteration of full-year guidance.
AB Foods said Primark, which currently trades from 271 stores in nine countries in western Europe, will open its first US store in Boston, Massachusetts, towards the end of 2015.
Negotiations are under way to open more stores in the northeast of the US up to the middle of 2016.
Primark trades as Penneys in Ireland.
"We'll open some stores, we'll start to learn, we'll see what sort of reception we get and we'll take it from there," AB Foods' chief executive George Weston told Reuters.
While there have been some successful British exports to the US, such as Philip Green's Topshop chain, there have been many costly failures including attempts by Marks & Spencer and Tesco.
Weston said Primark's success in entering new markets including Spain, Germany and France, where its low prices and quick adoption of fashion trends has pulled in cost-conscious shoppers meant it had "earned the right" to give the US a go.
"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," Weston said.
"We're not assuming that we'll succeed in the US but we do have a powerful proposition in terms of fashionability at very low prices," he said.
Last year Tesco, Britain's biggest retailer, ended a six-year attempt to crack the US with its Fresh & Easy grocery chain, booking restructuring costs of £1 billion. But it said last week it would try again with its F&F clothing business.
Meanwhile, AB Foods met forecasts with a 1% rise in first-half profit with a strong outcome from Primark and progress in its grocery operation offsetting a major fall in its sugar business.
The firm reiterated that lower sugar prices, as the market adjusts ahead of EU regime reform in 2017, will mean a substantial reduction in profit from sugar for its full 2013-14 year, while the current strength of sterling, if maintained, would have a translation impact on full year profit of about £50m.
But with Primark's profit expected to be "well ahead", improvements in grocery and ingredients and a lower interest charge, it still expects full year underlying earnings per share to be similar to the 98.9 pence made in 2013.
AB Foods made an underlying operating profit of £497m in the six months to March 1, meeting forecasts.
Operating profit in sugar slumped 60% to £64m from £162m the same time the previous year. Earlier this month Germany's Sudzucker, Europe's largest sugar processor, issued a profit warning.
At Primark, operating profit jumped 26% to £298m, on the back of a 14% rise in sales.
Group revenue fell 2% to £6.21 billion, underlying EPS rose 10% to 45.8 pence and the firm is paying an interim dividend of 9.7 pence, up 4%.
AB Foods is 55% owned by the Weston family.