The record global cotton price has knocked millions of pounds from Primark’s profits this year, the company has admitted, despite the shop attracting many more customers.
The discount fashion chain, which has a loyal customer base thanks to its £5 handbags and £15 dresses, reported that like-for-like sales increased by 3pc over the year to September 17 – one of the very few major high street chains to report an increase.
However, the cotton price, which hit the highest level since the American Civil War earlier this year, has had a severe impact because the company has not raised prices during 2011, preferring to keep customers coming through its stores. It was also felt compelled to join in the heavy levels of discounting on the high street, when summer sales started early this year.
As a result, its operating profit margins, which hit 12.5pc in the previous year, are likely to have fallen to about 10.2pc over the last year. Investec, the broker, was already forecasting that Primark’s operating profit would fall from £341m to £318m and has suggested it might need be tweaked downwards.
The parent company, Associated British Foods, said that it was more than happy with the result, as it updated its investors on a mixed year, with challenging conditions on the high street offset by mostly impressive figures from its food business.
John Bason, the finance director, said: “This is a good set of results given the background of quite steep commodity price increases and a very tough high street cross the developed world as consumer cut back.”