Shuttered stores mean more than £1bn in lost sales for Primark
Primark had already told us just after Christmas that the latest lockdowns would dent its sales significantly, but on Thursday, it said that lost sales for the current half year would add up to a massive £1.05 billion.
The company has no online operations to fall back on and while its stores will see a rapid return of customers when lockdowns end, the longer lockdowns continue, the more revenue it loses.
Its update for the 16 weeks to 2 January showed retail revenue down 30% year-on-year currency-neutral at £2.031 billion as UK and European restrictions “materially impacted” its business during November and late December.
Its estimate for the loss of sales in the periods of closure during these 16 weeks is £540 million. But while stores were open, trading was strong “given the circumstances”, with sales down only 14% on a like-for-like basis compared to last year. It also opened five new stores in this period “with a very positive customer reaction”.
The company said performance has varied by store, “reflecting the prevailing circumstances of our customers at the time, including home working, less commuting and much less tourism”. Sales at its stores in retail parks were higher than a year ago, shopping centre and regional high street stores were lower than last year and large destination city centre stores (which are heavily reliant on tourism and commuters) continued to see a “significant decline” in footfall.
While stores were open, and excluding the 16 major city destination stores, trading was down only 10% on a like-for-like basis for the whole estate. And excluding Boston, the trading performance of its US stores “continued to be strong and delivered sales in line with last year on a like-for-like basis”.
It added that "sales were strong in those stores open during the festive season, reflecting the excitement and broad appeal of the Primark offering”. All Christmas and gifting lines were sold out and the performance for ‘stay at home’ product categories was strong, especially nightwear and loungewear. It’s also encouraging that the level of markdown was “substantially lower” than a year ago.
As with the stock it was left with last spring, the company said it will warehouse around £200 million of autumn/winter goods for later this year. Meanwhile, all orders placed with its suppliers “will be honoured”.
The company has also managed to cut around 25% of operating costs, but with 305 stores closed across the UK and Europe (representing around 76% of its estate), there are limits to what it can do.
As mentioned, its assessment of lost sales if those stores currently closed remain so until the end of the current half (27 February), is over £1 billion. That’s much wider than the £650 million it had revealed on 31 December, based on closure dates that had been announced at that point.
On this basis, it expects adjusted operating profit for Primark in the first half to be broadly break-even, which would compare to an adjusted operating profit of £441 million for the same period in the last financial year.
And if stores stay shut until the end of March, it expects a further loss of £800 million in sales for the first three months of the next half-year. That would dent profit by £300 million.
But the company has continued to open new stores and while lockdowns have delayed some openings, they will continue in 2021. It expects to add a net 0.7 million sq ft of additional selling space in this financial year. It should open 15 new stores: five in Spain, three in the US, two in Italy, one in each of the UK, France and the Netherlands, a further store in Poland, and its first store in Czechia (Prague).
Based on its successful resizing of several US stores, it will also downsize its Boston Downtown Crossing store to 38,000 sq ft. “This will improve both store profitability and customer experience”, it said.
It has also signed leases for new locations in Jamaica Avenue in Queens New York, six in Italy, three in France, plus Katowice in Poland and Brno in Czechia.
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