Nov 7, 2017
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Primark still on a roll despite margin pain, French, Italian stores are top performers

Nov 7, 2017

Primark’s results always making interesting reading and in a fashion retail market that is challenged at best in many countries, it’s encouraging to see a physical store-based business that’s usually does well.


Did it do so in its latest year? Of course it did, although it faced challenges and had to swallow some margin pain in order to keep prices down. 

But it said Tuesday that its UK market was buoyant, the expansion of its selling space continued apace and trading was “excellent, particularly over the summer, delivering strong increases in market share.”

Its French and Italian operations seemed to go from strength to strength too and it expanded further in the US, although it’s unclear just how strong trading is there.


So let’s look at the numbers. In the 52 weeks to September 16, Primark accounted for a big chunk of parent company Associated British Foods’ revenue. ABF’s revenue rose 15% to £15.4 billion (or 6% currency-neutral) and Primark revenue rose 19% to £7.053 billion, or 12% currency-neutral. 

However, on a comparable week basis (2016 had been a 53-week year for the retailer), currency-neutral sales were 14% with comp sales up just 1%.

On the back of all this, Primark’s adjusted operating profit rose 7% to £735 million (up 3% currency-neutral) but the adjusted operating profit margin dropped to 10.4% from 11.6%. 

This fall came as the company took a hit on its margin due to its “determination to be the best value on the high street [that] drove the decision not to pass on to our customers the higher input costs arising from sterling weakness against the US dollar.”


So even with the challenges, Primark is clearly hugely profitable and able to drive sales despite the volatile trading conditions out there. ABF said the chain performed “particularly well" in the UK over the past year with sales 10% on a comparable basis and its share of the total clothing market up “significantly”. 

After a good first half, Q3 trading was strong in the lead-up to Easter and Q4 trading was equally strong, “driven by the ability of our buying, merchandising and design teams to identify and deliver key seasonal trends”. It didn’t say how trading has gone since the fiscal year ended, which is a shame as a number of companies have said that October has been tough. But it did say “the consumer response to our new autumn/winter range has been encouraging”.

But the Primark success story isn’t only a local one. Sales in continental Europe for the 52 weeks were 16% ahead currency-neutral, "reflecting the extensive selling space expansion there”. It didn’t says how comp sales did but of Primark's top 20 stores by sales density, “15 are now in continental Europe including seven in its newest markets of France and Italy”. 


It also said the major success of the newly-opened store in Liffey Valley in Dublin “demonstrates the opportunity for further selling space expansion in its more established markets.” 

And the US? Well, the results statement here could be open to various interpretations. The company said that during the two years since the opening of its first US store in Boston, “we have learned much about trading in the US and are constantly fine-tuning our ranges and store size to recognise the different demands of US shoppers”. 

It opened three stores during the year and extended the Boston store by 20% to 92,000 sq ft. In the coming year it plans to reduce the size of three of its earlier stores in order to “optimise their efficiency and provide the best shopping experience for our customers.” It will also open its ninth US store in Brooklyn, New York in the summer. Look like we’ll have to wait a while before we get ore detail on the US performance.


Primark is almost unique among mega-sized retailers in not selling online, but it does have a significant digital presence. It has over 10 million followers across its social media platforms and is very active with features such as beauty tutorial videos or live-streaming of press events and store openings. It said that “engaging this community directly drives footfall in our stores, and sales”. 

Rather than acting as a store, the Primark website aims to “inspire, and enables its followers to keep up-to-date on all the latest products, create wish lists, receive styling advice, and upload outfit posts to Primania,” it said as analysts continue to question why it doesn’t sell online.

But the company seems happy with the status quo and it did give some evidence to support its view that engagement is just as important as actual sales. Primark said that when leading Irish lifestyle blogger Pippa O'Connor put a picture of a star print Primark dress on Instagram in November 2016 it received over 11,000 'likes' in a week and the dress sold out in a matter of days.


So the company is clearly heavily committed to a physical stores-first strategy. No surprise then that in the last year, 1.5 million sq ft of selling space and a net 30 stores were opened across nine countries. Adding stores in the UK, Spain, France, the Netherlands, Germany, Belgium and Ireland, and expanding its Oxford Street East flagship by 40% gave it a total of 345 stores and 13.9 million sq ft at the financial year-end. 

And there’s more to come. In the next financial year, it’s planning over 1.2 million sq ft of additional selling space. France, Germany and the UK will see the most space added and overall it will open 19 new stores. Expect to see larger stores in Stuttgart, Munich, Toulouse, Bordeaux and Antwerp.

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