By Saabira Chaudhuri
LONDON--Months away from its entry into the U.S., fast-fashion
retailer Primark is also grappling with the impact of a weakening
euro.
Primark's parent company, Associated British Foods PLC, on
Tuesday said it expects a "modest decline" in adjusted profit for
the year, which is worse than the "marginal decline" previously
predicted, sending the company's shares down 4% in recent
trading.
The bulk of Primark's sourcing costs are in dollars, while much
of its revenue is in euros. The company warned that as its
contracts locking down prices expire, costs will rise, squeezing
margins in the coming financial year. Primark indicated it would
absorb the higher costs, saying, "We will maintain our position of
offering the lowest prices and best value on the high street."
The retailer will enter the U.S. this fall, although it declined
to elaborate on an exact date. It is opening three stores in
Massachusetts, one in Philadelphia, one in Danbury, Conn., one in
the New York borough of Staten Island and another in Freehold, N.J.
All the stores but one will be in malls, as a major part of
Primark's strategy is to be in locations with high foot traffic as
it builds brand awareness among Americans.
In an interview, ABF Chief Executive Officer George Weston said
Primark has signed a lease at a distribution warehouse in
Bethlehem, Pa., which will supply all eight of its stores. The
company plans to open two stores by Christmas and the rest by next
summer, totaling 500,000 square feet of store space in the first
year.
For now, Primark will continue to source for the U.S. stores
from current suppliers, mainly in China, Cambodia, Bangladesh and
India. Going forward, it is looking to suppliers in Ethiopia and
elsewhere in Africa to stock its U.S. stores.
Its product mix in the U.S. will be less like that in the U.K.
and more like that in Northern Europe, Mr. Weston said. He said the
color palette would be more conservative and that Primark in the
U.S. would stock fewer dresses and skirts and more trousers and
leggings.
While 75% of Primark's printed T-shirts in Europe and the U.K.
now feature U.S. imagery, the company won't offer these designs in
the U.S. Instead, it will stock T-shirts sporting images of
European bands and tourist attractions.
For the 24 weeks ended Feb. 28, Primark reported sales growth of
12%, or 15% at constant currency, to GBP2.55 billion ($3.80
billion). However, ABF--which also owns well-known food brands such
as Twinings tea--reported a 4% fall in adjusted pretax profit for
the period, to GBP450 million.
Pretax profit for the period totaled GBP213 million, down from
GBP434 million, on group revenue of GBP6.25 billion, up from
GBP6.21 billion.
Tapan Panchal contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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