Primark Sticks to Cautious U.S. Expansion Plans as Sales Gain

(Bloomberg) -- Associated British Foods Plc is sticking to cautious U.S. expansion plans for its Primark apparel chain, seeking to adapt stores that draw hordes of European shoppers to American consumers' preferences.

Primark said it's encouraged by sales at two stores it has shrunk and revamped in New Jersey and Connecticut. The chain will open a store in Brooklyn this year, bringing the total number of U.S. outlets to nine. Primark opened its first U.S. store in Boston almost three years ago.

“It's not the time to be saying that we are going to open more aggressively,” Chief Financial Officer John Bason said in a phone interview as the company reported third-quarter sales that were boosted by the fashion chain but held back by its sugar business. “We are going to put a sensible investment into the U.S. and make sure it works before investing more on the back of it.”

Primark's U.S. business could be worth as much as 4.7 billion pounds ($6.2 billion) if the company is able to successfully translate its fast-fashion model, according to Barclays analyst Alex Smith. In Europe, brick-and-mortar fashion retailers have fallen from favor with investors amid the rise of e-commerce and a shift in spending from clothes to entertainment.

Bason said profit at Primark will be higher than expected this year after the chain began buying more garments from southeast Asia, where tariffs and production costs are lower than China. The chain -- which sources around three-quarters of its products in dollars -- has also been boosted by the weakening of the U.S. currency.

Primark's overall sales have risen 6 percent for the year to date in constant-currency terms. The gains in apparel were offset by a 17 percent drop in ABF's sugar revenue during the third quarter, as a result of a supply glut in the European Union. ABF shares fell as much as 4.1 percent early Thursday in London.

In the medium-term, sugar pricing is a “key unknown” and it's unlikely to turn around for at least six months, Berenberg analyst Fintan Ryan said by email.

--With assistance from Lisa Pham.

To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier

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