Primark Owner Warns Of Currency Hit To Profits

The owner of Primark suffered a 5% fall in its share price when the FTSE 100 opened on Tuesday after it warned of a deepening hit to profits from currency rates.

Associated British Foods (LSE: ABF.L - news) (ABF) edged down its full-year earnings guidance after reporting a 5% fall in adjusted operating profit to £474m in the 24 weeks to 28 February.

Growth at its discount fashion chain Primark was offset by continued weakness in its sugar operation and ABF said its trading outlook for the full 2014-15 year was unchanged.

But it said sterling's continuing strength against most of its major trading currencies, bar the US dollar, and the transactional impact of euro weakness on the results of Primark and British Sugar, meant it was now expecting a "modest" decline in full-year operating profit.

It had previously forecast a "marginal" impact.

The US dollar/euro exchange rate has moved by more than 20% over the last year.

ABF said: "If the current euro weakness against sterling and the US dollar persists, this will have an impact on the group's operating profit for the remainder of this financial year and a greater impact next year."

Primark buys a substantial proportion of its garments in US dollars and sells in euros and sterling - an issue ABF said it was working to mitigate.

ABF said that the impact of the strong dollar on Primark, which has 287 stores, would "increase our costs for the autumn/winter season and will be seen in the fourth quarter of this financial year and into the following financial year".

Primark's sales in the first half were 15% ahead of last year at constant currency, driven by an 11% increase in retail selling space.

"As a result of the weakening of the euro against sterling, total sales were 12% ahead of the same period last year at actual exchange rates," ABF said.

The group added that Primark's plans for entry into the northeast of the United States were "well advanced."