MAKSY Marks and Spencer Group (QX)

By Saabira Chaudhuri 

Europe's cheapest fast-fashion retailer is pushing harder into the U.S.

Primark, which has long offered shoppers in the U.K. and other European markets trendy clothes at bargain-basement prices, has set its sights beyond the handful of stores it opened in the U.S. last year, including one at the original site of cut-rate retail pioneer Filene's Basement.

Primark owner Associated British Foods PLC said awareness of the Primark brand has grown in the U.S., where its offerings include $10 women's jeans and $3 men's cotton T-shirts. It now has five stores, most recently opening in regional malls in Connecticut, New Jersey and Pennsylvania. A spokeswoman said Primark plans to open three new U.S. stores, in Burlington, Mass., Braintree, Mass., and New York's Staten Island borough, and will expand its Boston store by 31%, to 92,400 square feet.

The U.S. expansion is part of a steady rollout of new stores by Primark, which now has stores in nine countries outside the U.K. and Ireland and doesn't sell clothing online. Overall, the company said it plans to open a further 1.3 million square feet of space in fiscal 2017, an acceleration from last year, when it opened 1.2 million square feet.

"That new store openings are still greeted with enthusiasm by our customers says much for the capability of our buyers and merchandisers, who ensure that Primark remains at the forefront of fashion, but is also the result of our store designers making Primark an attractive and fun place to shop," said ABF Chairman Charles Sinclair.

For the 53 weeks ended Sept. 17, ABF reported pretax profit of GBP1.04 billion ($1.29 billion) on revenue of GBP13.39 billion, up from GBP707 million on revenue of GBP12.80 billion a year earlier.

Primark's sales climbed 9% at constant currency, driven by store openings. Same-store sales declined 2%, which the company blamed on unseasonable weather and cautious consumer sentiment in key markets like the U.K. and Germany. Adjusted operating profit ticked up to GBP689 million from GBP673 million, although the margin dropped to 11.6% from 12.6%.

ABF warned that following the pound's slide in the wake of Brexit, Primark's operating margins will be squeezed because the company pays for much of the clothing it sources from Asia in dollars. Still, Primark, whose success so far has hinged on its ability to offer bargain-basement prices, said it remains committed to maintaining its price leadership.

Primark's expansion strategy stands in contrast to those of other clothing retailers, such as Inditex's Zara and Gap Inc., which have taken a more cautious view on store expansion. Inditex, officially Industria de Diseño Textil SA, earlier this year said it was slowing the breakneck expansion of Zara stores and would step up online sales to stay apace of customers' shifting shopping habits. Meanwhile, Gap has been shrinking its footprint by closing dozens of locations in its home market and has also said it would evaluate its Banana Republic and Old Navy operations outside North America.

Also Tuesday, retailer Marks & Spencer Group PLC--a U.K. retail mainstay-- said it would close 60 of its clothing and home stores in the U.K. and exit 10 international markets, including China and Belgium.

M&S's performance has been mixed for a string of quarters now, with higher-performing food stores and a struggling clothing and home business. The company plans to continue to open new food stores.

The company said underlying pretax profit, which strips out one-time charges, fell 19% to GBP231.1 million for the six months ended Oct. 1.

"This isn't about removing or reducing our clothing sales, it's about making sure we have the right estate for how our customers shop," said M&S Chief Executive Steve Rowe on a call with reporters.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

November 08, 2016 08:08 ET (13:08 GMT)

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