Overseas growth offsets UK retail pain

Overseas growth and market share gains are helping British retailers cope with sluggish consumer spending at home and rising raw material costs, updates from chains including Primark, Mothercare and ASOS showed. Discount clothing chain Primark said on Thursday 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, sending its shares 3 percent higher.
Online fashion retailer ASOS and baby goods group Mothercare both highlighted strong sales abroad in the face of a weaker British market, while Sports Direct posted a rise in year profit as it benefited from problems at rival JJB. UK-focused 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 percent year-on-year in June following a 2.1 percent 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 told Reuters 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 percent in the 16 weeks to June 25, boosted by growth in markets like Germany and Spain, and Bason signalled sales at stores open over a year had continued to rise at around the first-half rate of 3 percent, including increases in Britain and Ireland. Marks & Spencer, Britain's biggest clothing retailer, on Wednesday reported flat underlying sales at its non-food business. AB Foods, which also markets Silver Spoon sugar, Mazola vegetable oil, 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-focused Premier Foods.
ASOS reported a 69 percent rise in first-quarter sales to 104.2 million pounds ($167 million) continuing its rapid growth as a growing number of shoppers switch to the internet. But the group, which targets 16 to 34-year-old women looking to emulate the designer looks of celebrities like Kate Moss, Sienna Miller and Alexa Chung but at a fraction of the price, is seeing a change in the composition of that growth. While international sales leapt 160 percent to account for over half of the total, UK sales growth slowed to 15 percent.
ASOS shares, which have nearly trebled over the last year, were up 1.7 percent at 2,391 pence. Mothercare reported similarly contrasting fortunes for its fiscal first quarter, with international sales up 15.2 percent, but UK like-for-like sales down 4.3 percent. The firm, which has issued two profit warnings this year, plans to shrink its UK in-town estate as it focuses more on faster growing markets, like China, India, the Middle East, Eastern Europe and Latin America, where it can benefit from higher birth rates and burgeoning middle classes.
Its shares were down 1.7 percent at 404.2 pence. Sports Direct, Britain's biggest sporting goods retailer, posted a 25 percent rise in annual earnings as it grabbed market share from stricken rival JJB Sports. The firm is also eyeing overseas growth. CEO Dave Forsey told reporters it was aiming to have a presence in all 17 euro countries in the next five years. It currently has 79 international stores across seven countries. Its shares, which have more than doubled over the last year, were down 1.3 percent at 255 pence.