Primark sees rare comp sales dip but recovery is already under way
Primark may not be a bellwether for the fashion retail sector given its ability to prosper even when almost everyone is struggling. But it’s certainly used as a reference point to just how bad things are. After all, if Primark does badly, what chance do others have?
So a first-half trading update ahead of its interim results was closely watched on Monday. And what did it reveal? Parent company Associated British Foods seemed content, even though Primark saw a comparable sales dip for the 24 weeks to March 3. But with its core UK business still buoyant and recent weeks having seen stronger trading, it seems justified in its upbeat view.
Let’s look at the percentages. The first half may still have a few days to run but the brand’s total sales in the 24-week period are expected to be 7% ahead year-on-year, at constant currency, “driven by increased retail selling space,” and 9% ahead of last year at actual rates. Clearly, sales are growing strongly but mainly because of space expansion.
The company said that its comparable sales actually fell 1% in the period, a rare admission for usually-buoyant Primark. And while 1% is hardly a plunge, it does reflect just what a tough time many retailers have had in recent periods.
Primark’s total reliance on physical stores meant it didn’t have an expanding e-tail channel to rely on. That may be a weakness, but it could also be interpreted as a sign of strength - reporting only a 1% dip, despite no e-commerce sales to boost turnover, was no mean feat in one of the most challenging retail seasons for years.
What caused the slight weakness? It seems Primark was hurt, as so many other retailers were, by the major dip early in the autumn season that it didn’t fully recover from. Sales growth in the 24 weeks “was held back by unseasonably warm weather in October” with a “significant” decline in comp sales that month.
But it looks like it’s bouncing back and comp sales for the 16 weeks to March 3 are expected to be up 1%, while it also achieved “record” sales in the week before Christmas. Additionally, early SS18 trading “has been encouraging.”
UK, US AND EUROPE
Of course, the 1% comp sales dip wasn’t spread evenly across all of its trading markets so some did worse than others. Primark is “performing very well in the UK,” it said, with total sales 8% ahead of last year and a “strong increase” in its share of the total clothing market. This was helped by 4% growth in comp sales “and the breadth of [its] consumer offering.”
But a 4% comp sales rise in its largest market at a time when the business experienced a 1% drop overall means the fall was bigger in some countries. Unfortunately, we don’t know which ones. The US? Well, all it said was that the business there “continues to make progress.”
Operating margins in the half are expected to have been close to those in the same period last year “with better buying virtually offsetting the adverse effect of the US dollar exchange rate on purchases.” Stock was “tightly managed again this period and markdowns will [have been] in line with those of the first half last year.”
The company expects an acceleration in Primark profit growth in H2 due to margin improvements, driven by that “better buying” and exchange rate benefits. This will “more than offset an expected return to a more normal level of markdowns, compared to the very low level achieved last year.”
And as the total sales growth shows, Primark is hugely committed to opening new stores. As of March 3, it will have 352 stores and will be trading from 14.3 million sq ft, up from 13.1 million sq ft a year ago. Seven new stores were opened in the period, including three in Germany, two in the UK (including Charlton, not far from where the planned new Ikea is set to open), plus Loulé in the Algarve, Portugal and Le Havre in France.
It expects to add 1.2 million sq ft of new selling space in this financial year with the next quarter seeing new stores planned for Toulouse and Metz in France, Munich in Germany, Antwerp in Belgium, Valencia in Spain, Brooklyn (its ninth store in the US), and in the Westfield London shopping centre at White City.
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