Primark lifts profit forecast due to fewer markdowns

Primark says profits will be better than expected in its current financial year because it has escaped the worst of the discounting frenzy forced upon many competitors.

The retailer's parent firm painted a rosy picture for Primark sales, while fashion rival Superdry also joined it in recording a strong trading performance amid the struggles facing much of the wider high street in the UK.

Primark's trading update for the first 40 weeks of its financial year to 23 June showed total sales 6% ahead of the same period last year - with UK sales said to be performing well with like-for-like growth.

It credited the opening of new stores and improved trading, in the eurozone particularly, and said higher profit forecasts were mainly the result of not having to cut margins as aggressively as previously predicted.

But shares in its parent company, Associated British Foods (LSE: ABF.L - news) (ABF), were down 4.2% by market close.

George Salmon, equity analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) , said continued headwinds for the company's sugar business were the biggest factor.

He said: "The sugar business has been struggling in recent times, and unfortunately there's no sign of a let up.

"Lower EU prices and a supply glut mean profits look even weaker than previously thought.

"Obviously shareholders would want ABF to be firing on all cylinders, but given the sprawling nature of the business, that's not always possible.

"With (Other OTC: WWTH - news) that in mind, investors should try and keep their focus on the main factor. At ABF, that's Primark. Trading in Europe is notably stronger, which, combined with tight stock management and favourable exchange rate movements, is helping profitability improve."

Despite Superdry's strong performance, its annual results also showed a big charge, of almost £21m, from servicing its hedging strategy - up from £2.2m the year before - amid continued weakness in the value of the pound since the Brexit vote.

Superdry said a lift in digital sales in its markets worldwide helped group revenue rise 16% to £872m in the 12 months to 28 April.

It said it had been taking a "disciplined" approach to its store network as consumer habits change, though it opened 26 sites, taking its total to 246 owned stores across 12 countries.

Underlying profits, which strip-out one-off costs, rose 11.5% to £97m while costs associated with a failed store in Germany also took a toll on statutory pre-tax profits, which fell 23% to £65.3m.

Shares (Berlin: DI6.BE - news) - down 40% in the year to date - rose by more than 10% in early trading, ending the day up 6.3%, after it announced growth in its dividend and the payment of a special dividend - its second in as many years.

Chief (Taiwan OTC: 3345.TWO - news) executive Euan Sutherland said: "Whilst the consumer environment continues to be challenging, the board remain confident that Superdry is a uniquely advantaged, highly cash-generative business that will continue to deliver sustainable growth for our investors.

"This confidence is demonstrated through our second special dividend in two years of 25p per share in addition to an 11.4% increase in the total ordinary dividend."