By Emma Thomasson
BERLIN (Reuters) - Discount fashion store Primark, owned by Associated British Foods (L:ABF), saw a rapid programme of new store openings eat into sales at existing shops in the Christmas period in Germany and the Netherlands.
AB Foods shares, which have underperformed the FTSE 100 in the last month after rival Next (L:NXT) reported poor Christmas trading, were down 2.5 percent at 0955 GMT, compared to a 0.3 percent weaker FTSE.
"The lack of return to like-for-like growth at Primark in Q1 will disappoint, even if largely linked to Europe self cannibalisation," said Jefferies analysts in a note.
Sales at Primark rose 12 percent in the 16 weeks to Jan. 7, matching the pace at which average retail space increased in the period, meaning sales like-for-like sales were effectively flat.
While AB Foods said like-for-like sales in its main market Britain were positive - rising about 1-2 percent according to analysts - they declined in Germany and the Netherlands.
Primark has been on a big expansion drive in continental Europe in recent years, putting pressure on rivals such as Sweden's Hennes & Mauritz (ST:HMb). It now has 38 Dutch and German stores, out of a total of 328, but does not sell online.
AB Foods finance chief John Bason said the changes to trading patterns were not a cause for concern.
"Existing stores see a reduction of sales densities but from really high levels. It is a normalisation of sales densities," he told Reuters, noting that mothers with strollers could now access one Berlin store that had previously been too packed.
AB Foods has already opened 0.8 million square feet of the 1.3 million it plans for the financial year to September, with Bason saying more new stores were planned this year in the Netherlands, Spain, the United States, Belgium and Britain.
In Britain, Primark reported growing market share, despite falling shopper numbers on high streets due to e-commerce. Primark is active on social media but has no plans to sell its low-price clothes online as the logistics are too expensive.
Bason said sales of women's fashion have been weaker, echoing comments by Next Chief Executive Simon Wolfson, who believes Britons are spending less on clothes and instead using spare cash on holidays, eating out and events.
Primark can compensate by giving more space to children's and menswear as well as home furnishings, Bason said.
On a group basis, the company, which also has big sugar and grocery businesses, said its outlook for the year was unchanged, with the weak pound after Britain's vote to leave the European Union boosting the value of overseas sales.
AB Foods reiterated that Primark's operating profit margin will fall during the year as it has pledged to keep prices low despite the weaker pound, which pushes up the cost of goods sourced in Asia in U.S. dollars.
AB Foods said foreign exchange hedging contracts were in place for most remaining purchases for the financial year, with Bason adding that Primark was having good negotiations with its suppliers, where productivity was increasing.