Primark owner Associated British Foods (AB Foods) has warned it will take a £20 million hit due to the stronger pound.
While its full year outlook for the group is unchanged – with “progress” expected in adjusted operating profits and adjusted earnings per share – unfavourable exchange rates are expected to drag on results.
“With two thirds of the group’s operating profit earned outside the UK, the strengthening of sterling against most of our trading currencies, other than the euro, will result in a loss on translation this year of some £20 million,” AB Foods said in a trading update on Monday.
The company said performance from segments including its Primark retail division would help take the edge off more muted progress in its sugar unit.
“Strong profit performances this year from Primark, grocery, agriculture and Ingredients are expected to more than offset the adverse effect of lower EU sugar prices,” the company said.
Full year sales at Primark are expected to rise 5.5% on a constant currency basis, driven by increased selling space, but offset by a 2% decline in like-for-like sales.
At actual exchange rates, sales at Primark are expected to rise 6%.
It follows a strong performance in the UK, where its share of the clothing market has “increased significantly”.
Primark’s full year UK sales are now expected to rise 6%, while annual like-for-like growth is expected at 1.5%.
However, like for like sales for Primark as a whole were “held back” by a drop in northern Europe where unseasonable weather led to tough trading conditions.
It said sales in Northern Europe were still well ahead of last year thanks again to increased selling space.
“Early trading of the new autumn/winter range has been encouraging,” AB Foods added.
Store selling space for Primark grew by 900,000 square feet this year, following 15 new store openings that brought the total estate to 360 stores.
It included five stores in Germany, four in the UK, two in France and one each in Portugal, Belgium, Spain, Netherlands and the US.
That was amid the closure of a small store in Lisnagelvin, Londonderry, in Northern Ireland, while selling space at its US stores in Freehold and Danbury was reduced.
The company also gave an update on its store in central Belfast, which was destroyed by a fire last month.
All staff and customers were safely evacuated, and AB Foods said it is insured against the replacement costs of the building and the subsequent interruption of business.
Next year, AB Foods is planning over 1 million square feet of additional selling space for Primark, half of which will be added in the first six months.
The most space will be added in the likes of the UK, Germany, France and Spain.
AB Foods will release its full year results covering the year to September 15 on November 6.