Primark upbeat as UK, Europe and US all continue to recover
Primark seems to have almost fully recovered from the pandemic with a trading update on Monday showing sales and profit bouncing back. The company said that in the half-year period ending later this week, Primark sales should be more than 60% ahead of last year on a currency-neutral basis, with an operating profit margin of some 11%, “close to” that it had pre-pandemic.
And compared to the pre-Covid half, sales will only be 4% down. Admittedly, this has been helped by the fact that the company has continued to open new stores in the past two years and has added around 8% to its selling space.
The performance in the latest half reflects the fact that all of its stores remained open and trading throughout the six months, except for short periods in Austria and The Netherlands.
It added that like-for-like sales during H1 improved compared to Q4 of its previous financial year. Customer footfall is picking up again in most markets, particularly the UK and Ireland, after the disruption caused by the Omicron variant in the middle of the period.
In H1 so far, sales in its UK stores are “well ahead” of last year. Like-for-like sales have improved and are expected to be 9% below two years ago while total sales are expected to be 8% down on that basis. Stores in retail parks and town centres continue to outperform destination city centre stores with like-for-like sales in retail parks ahead of pre-Covid levels. This also suggests that once cities recover as tourists return and workers go back to their offices, the company should be completely back on track.
Sales in Continental Europe are also well ahead of last year and like-for-like sales are expected to be only 14% below two years ago, reflecting the continued impact of Omicron on footfall.
But in France, Iberia and Italy, the regions it calls “our major opportunities for growth”, like-for-like sales are improving. Total sales are expected to be a mere 2% below two years ago. But again, this includes a 12% increase in retail selling space. It’s also estimating lost sales adding up to £32 million linked to the short periods of store closures in Austria and The Netherlands during the period.
Meanwhile the US business “continues to outperform the rest of the store estate” and is on track to deliver 2% like-for-like sales growth in the period compared to pre-Covid levels, with total sales 35% ahead of two years ago.
Primark added that it has seen a “very positive initial reaction from customers across all markets to the bursts of colour in our new spring/summer collections”. Luggage and swimwear have been popular in recent weeks, “giving us confidence as we look ahead to the holiday season after two years of travel restrictions”.
Response to the launch of the new collaboration with food-to-go chain Greggs in the UK was strong with “high levels of engagement across our social channels driving excitement around the Primark brand, particularly among the younger customer base”.
And fortunately, the effect of inflation on raw materials and the supply chain “has been broadly mitigated by a reduction in store operating costs and overheads and a favourable US dollar exchange rate”. Meanwhile, the pressure of disruption to the supply chain experienced in the autumn has continued to alleviate despite some delays in dispatch and slightly longer lead times.
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