Primark boosts UK market share, says Europe and US look strong
A trading update from Primark owner Associated British Foods on Monday showed that the value fashion retailer is continuing to perform well, even if like-for-like sales are merely flat.
Ahead of its next results statement, for the 24 weeks to February 29, ABF said Primark sales are expected to be up 4.2% at constant currency and 2.5% ahead at actual exchange rates, “driven by increased retail selling space and level like-for-like sales”.
But with an expected decline in margin, operating profit should be “marginally” down on last year at constant currency and on a lease-adjusted basis. That said, on a reported basis, operating profit will be ahead of last year.
In the core UK market, the retailer said it “delivered a further increase in our share of the total clothing, footwear and accessories market”. And sales there should be up 3% on the back of “a strong contribution from new selling space, partially offset by a 1.3% decline in like-for-like sales”. It said trading was “particularly good over November and December but weakened in January and February against very strong comparatives in the prior year”.
Mainland Europe did better though. Sales in the eurozone are expected to be 5.3% ahead at constant currency with particularly strong sales growth in France, Belgium and Italy. It said is new store in Milan “traded ahead of expectation and our store in Ljubljana, Slovenia continued to trade strongly”.
Like-for-like sales for the eurozone were up 0.5% due to “excellent like-for-like sales in France and Italy and, at this early stage, a notable improvement in Germany which was delivered through a series of operational changes made by the new management team”.
And of course, when the company issues trading statements or results reports, everyone’s always keen to hear how it's doing in the US, which got off to something of a slow start several years ago.
The company said that its business there “continued to perform strongly, delivering like-for-like sales growth, with particularly strong trading at the store in Brooklyn. Together with the contribution from planned store openings, we expect a much-improved operating result for the year”.
But as with all retailers, there are other issues to take into account than just sales performance. ABF pointed out that the average exchange rate for the British pound against its major trading currencies (other than the US dollar) was stronger in H1 than a year earlier and there will be a deficit on currency translation of around £6m. And in H2, with a higher contribution of overseas profits, that deficit will be bigger if current exchange rates continue.
The currency issues mean the margin was down in H1 as purchases this time were at a much stronger US dollar exchange rate, although “the effect was substantially mitigated by both reduced markdowns and reductions in the costs of goods, primarily lower materials prices”.
And then there’s the coronavirus, Covid 19, to take into account, although in the case of its superstar retail operations, the problem doesn't seem to be large for ABF at present. Primark sources “a broad assortment” of its product from China and typically builds inventories in advance of Chinese New Year. That means it’s “well stocked with cover for several months and [we] do not expect any short-term impact,” it said. It added that it’s “working closely with our suppliers in China to assess the impact on their factories and supply chains and their ability to fulfil our current orders. If delays to factory production are prolonged, the risk of supply shortages on some lines increases. We are assessing a step-up in production from existing suppliers in other regions”.
Aside from concerns over margins and the supply chain, the company continued to expand its retail selling space in H1. This grew by 0.2m sq ft since its previous financial year-end and as of the end of this month, 375 stores will be trading from 15.8m sq ft, compared to 15.1m sq ft a year ago.
Three new stores were opened in the period including Seville Lagoh in Spain, Kiel in Germany, and that Milan location in Italy. Selling space was reduced in two stores in Germany and a small store in Rathfarnham, Ireland was closed.
The programme will continue in 2020 and the firm should open 0.9m sq ft of new selling space in this financial year overall. A strong opening programme is planned for the next quarter, with a net 0.5m sq ft added. The new stores will open in in the UK, US, France (with four new stores), Italy, Belgium, Spain, Germany and Poland.
And as well as that Polish store (in Warsaw), there's more activity going on in Eastern Europe with the company having signed leases for further openings in Poland, Slovakia and the Czech Republic.
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