Associated British Foods (ABF) reported FY17 results for the 52 weeks ended September 16, 2017. This report focuses on results for Primark, ABF’s retail division. Primark reported a 19% year-over-year increase in FY17 revenues to £7,053 million, or a 12% year-over-year increase in constant currency. During the year, Primark increased its selling space by 12.3% year over year. Last year was a 53-week year for the company and, as a result, FY17 started one week later than FY16. On a comparable-week basis, total sales increased by 14% in constant currency and comparable-store sales by 1%. UK sales increased by 10% year over year, and Primark managed to significantly increase its total share of the UK apparel market. Sales in continental Europe increased by 16% year over year at constant currency, reflecting the significant expansion of selling space in the region. During FY17, Primark opened 30 net new stores across nine countries, adding 1.5 million square feet of selling space, to bring the total to 345 stores and 13.9 million square feet. The company opened 11 new stores in the UK and three in the US. Primark’s FY17 operating profit increased by 3% at constant exchange rates, reflecting the effects on input costs from the weakness of the British pound and the strength of the US dollar. Consequently, the operating profit margin contracted by 120bps year over year to 10.4%.

Outlook

With most of UK purchases for 1H18 contracted at a weaker sterling/US dollar exchange rate than in 1H17, Primark’s margins will be negatively affected in 1H18. The strengthening of the euro against the US dollar in recent months will have a positive effect on the company’s European margins, particularly in 2H18, if these currency rates prevail. With more typical levels of markdowns and some cost absorption increases, Primark expects operating margins in FY18 to be similar to those in FY17. During FY18, the company plans to open 19 additional stores, representing 1.2 million square feet of additional selling space. France, Germany and the UK will see the most store openings and a ninth US store will open in summer 2018 in Brooklyn, New York.