Retailers look overseas to ease the domestic pain

Discount clothing chain Primark said yesterday it had managed to combine the two, reporting a pick-up in sales growth in its fiscal third-quarter at a time when most high street rivals are struggling to grow at all.

Online fashion retailer ASOS and baby goods group Mothercare both highlighted strong sales abroad in the face of a weaker retail market, while Sports Direct posted a rise in year profit as it benefited from problems at rival JJB.

UK retailers are having a torrid time as shoppers are squeezed by rising prices, subdued wages growth and a Government austerity drive.

A survey on Tuesday showed sales at British stores open over a year fell 0.6 per cent year-on-year in June following a 2.1 per cent drop in May.

Clothing chains have faced extra pressure from a jump in the price of raw materials such as cotton and rising wages in China, where many of them produce their garments.

Primark, owned by Associated British Foods, has responded by absorbing most of the cost increases, taking a hit to profit margins in order to protect its low-price credentials.

The move has been painful. AB Foods cut its full-year earnings guidance in April.

But finance director John Bason said that a pick up in third-quarter sales growth showed the strategy was right.

“Our numbers speak for themselves. Primark has built up huge trust with its consumer base. We’re not going to throw that away for the sake of one cotton price shock,” he said, adding an easing in cotton prices since March should allow margins to recover in the second half of fiscal 2011-12.

Primark said sales rose 15 per cent in the 16 weeks to June 25, boosted by growth in markets like Germany and Spain, and Mr Bason signalled sales at stores open over a year had continued to rise at around the first-half rate of 3 per cent, including increases in Britain and Ireland.

AB Foods, which also markets Silver Spoon sugar, Ovaltine drinks and Twining teas, said its grocery arm was also benefiting from growth abroad, offsetting weakness in Britain which led to a profit warning last month from UK-focussed Premier Foods.

ASOS reported a 69 per cent rise in first-quarter sales to £104.2m continuing its rapid growth as a growing number of shoppers switch to the internet.

International sales leapt 160 per cent to account for more than half of the total, while UK sales growth slowed to 15 per cent.

Mothercare reported similarly contrasting fortunes in its first quarter.