(Bloomberg) --
Discount clothing chain Primark is betting that opening more and bigger stores will drive sales gains, bucking a trend in which competitors are scaling back their bricks-and-mortar presence.
The apparel brand, owned by Associated British Foods Plc, expects new stores in the U.S. and Europe to propel sales for the full year. The strategy runs counter to what other retailers are doing, and not everyone is convinced it can work. The shares fell 3% in London, giving up early gains.
Primark doesn't even sell online, making it an anomaly in a sector that's reeling from a shift to e-commerce and leaving behind a landscape of empty storefronts. A new concept store in Birmingham, England, has had a promising start, the company said, and it plans to add a further 1 million square feet of selling space next year.
“We are the people investing in the high street and in the U.K. that distinguishes Primark from our competitors,” AB Foods finance director John Bason said by phone as the company maintained its full-year forecasts.
Primark expects sales to be 4% ahead of last year in constant-currency terms, though it predicts a 2% decline on a comparable basis -- showing it's not immune to the woes that have afflicted Hennes & Mauritz AB and Zara owner Inditex SA lately.
While profit gains are being driven by lower markdowns and better buying, Bason said, a weakened pound is expected to hit margins next year. That's because Primark buys garments in dollars and mostly sells in pounds and euros.
The margin on earnings before interest and tax could fall 0.3 percentage point to 11.3% next year and see further declines in 2021 as a result, according to RBC analyst Richard Chamberlain. Primark “remains a best-in-class discounter and has strong space growth which is driving market share gains, albeit with negative like-for-like sales trends,” he wrote in a note.
The decline in comparable sales is mainly due to weakness in Germany, the company said, adding that its performance improved in the fourth quarter.
To contact the reporter on this story: Ellen Milligan in London at emilligan11@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade
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