Primark targets U.S. with first store openings
LONDON (Reuters) - Primark, the fast-growing clothing chain owned by Associated British Foods (ABF.L), is to enter the United States, it said on Wednesday, becoming the latest British retailer to attempt to crack the American market after success in Europe.
Shares in AB Foods rose 9.1 percent on the back of the U.S. initiative, a small rise in first half profit and reiteration of full-year guidance. The stock was the biggest gainer in the blue-chip FTSE index and notched up its largest one-day gain in 14 years.
AB Foods said Primark, which currently trades from 271 stores in nine countries in western Europe, will open its first U.S. store in Boston, Massachusetts, towards the end of 2015.
"Even though this will likely not move the needle in terms of results for another three to four years ... it is definitely a 'wow' moment," Andrew Wood, analyst at Sanford C Bernstein. said.
Negotiations are under way to open more stores in the north east of the U.S. through to the middle of 2016.
"We'll open some stores, we'll start to learn, we'll see what sort of reception we get and we'll take it from there," AB Foods Chief Executive George Weston told Reuters.
While there have been some successful British exports to the U.S., such as Philip Green's Topshop chain, there have been many costly failures including attempts by Marks & Spencer (MKS.L) and Tesco (TSCO.L).
Weston said Primark's success in entering new markets including Spain, Germany and France, where its low prices and quick adoption of fashion trends has pulled in cost-conscious shoppers meant it had "earned the right" to give the U.S. a go.
"The reception we received in France has been really remarkable, that's a market that others have found difficult.
"When we went to Germany we were advised that they were kings of discounters yet our business there goes from strength to strength, and when we went to Spain, that was the home of fast fashion and what did we have to teach the Spanish about retailing - we're one of the largest retailers in that country now," Weston said.
"We're not assuming that we'll succeed (in the U.S.) but we do have a powerful proposition in terms of fashionability at very low prices."
Last year Tesco, Britain's biggest retailer, ended a six-year attempt to crack the U.S. with its Fresh & Easy grocery chain, booking restructuring costs of 1 billion pounds ($1.68 billion). But it said last week it would try again with its F&F clothing business.
AB Foods met forecasts with a 1 percent rise in first-half profit with a strong outcome from Primark and progress in its grocery operation offsetting a major fall in its sugar business.
The firm reiterated that lower sugar prices, as the market adjusts ahead of EU regime reform in 2017, will mean a substantial reduction in profit from sugar for its full 2013-14 year, while the current strength of sterling, if maintained, would have a translation impact on full year profit of about 50 million pounds.
But with Primark's profit expected to be "well ahead", improvements in grocery and ingredients and a lower interest charge, it still expects full year underlying earnings per share to be similar to the 98.9 pence made in 2013.
AB Foods made an underlying operating profit of 497 million pounds in the six months to March 1, meeting forecasts.
Operating profit in sugar slumped 60 percent to 64 million pounds. Earlier this month Germany's Sudzucker (SZUG.DE), Europe's largest sugar processor, issued a profit warning.
At Primark, operating profit jumped 26 percent to 298 million, on the back of a 14 percent rise in sales.
Group revenue fell 2 percent to 6.21 billion pounds, underlying EPS rose 10 percent to 45.8 pence and the firm is paying an interim dividend of 9.7 pence, up 4 percent.
Shares in AB Foods, 55 percent owned by the Weston family, and up 47 percent over the last year, were up 247 pence at 2,969 pence by 0927 GMT, valuing the business at 23.4 billion pounds. ($1 = 0.5944 British Pounds)
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