Primark’s enhanced appeal as a fast-fashion retailer may spur a valuation rebound. Backed by $20 billion multinational Associated British Foods (ABF.L), the UK retailer of inexpensive coats and shoes believes it can achieve an adjusted profit margin for operations of over 10% this year, a significant improvement from the 8.2% it achieved in the 12 months ending on September 16. This is mostly because the cost of materials and freight has begun to decrease. Not to mention the additional one million square meters of new shopping center space. Meanwhile, a significant push into the US market may boost sales even further.
For its parent company, which also controls food businesses including Twinings, Jordans, and Ovaltine, Primark’s success is crucial. If the retailer’s sales were to increase by 7% a year—roughly half of the 15% increase they saw last year—they would reach 9.6 billion pounds. Breakingviews calculations indicate that a 10% increase in margins would result in a 235 million pounds increase to the conglomerate’s operational profit, which was 1.5 billion pound last year. According to LSEG data, Associated British Foods trading on 12.8 times its 2024 revenues before its share price spiked by 5% on Tuesday. This represents a significant decline from the company’s average of over 20 times over the previous ten years. Primark can close this difference if its input costs continue to decline and it grows well in the United States.