Primark comp sales fall but totals rise and it sees margin boost
In a fashion retail market that's more challenged than it has been for decades in many countries, seeing how the most successful players are faring is always interesting, especially if those players don’t sell online.
And on Thursday, we were able to do that as Primark owner Associated British Foods issued a trading update for the 40 weeks to June 22. So how has its star retail division done? Have the much discussed weather problems dented its performance?
On the surface, it would seem not, as the company's sales have continued to rise. But dig just a little deeper and you can see that even the mighty Primark is facing some difficulties.
Sales at the chain in the year-to-date were 4% ahead of last year at both constant currency and actual exchange rates, but this was driven by increased selling space and it was “partially offset by a decline in like-for-like sales,” although the company didn't say how big that decline was.
In the UK, it said the sales growth it had seen in the first half continued in the third quarter and it recorded a further significant increase in market share. But like-for-like sales were held back by… yes, you guessed it, “unseasonable weather in May.” This compared badly to a favourable market environment in the same period last year.
Not that it was all bad news as the company has “seen an improvement in sales in June.” And trading at its new stores was strong, plus it has “been encouraged by our customers' reaction to the full product range and the new food and beverage and beauty services offered in [the new store on] Birmingham High Street.”
Sales in the eurozone were also affected by the unseasonable weather in May “but trading recovered strongly in June.” Sales growth was delivered in Spain, Portugal, France and Italy but trading continued to be weak in Germany, a market that’s currently seeing as many fashion retail challenges as the UK.
The business in the US “continued to deliver encouraging like-for-like and strong total sales growth,” which is encouraging. And its progress there should continue as over the next 12 months as it expects to open the previously announced new stores at American Dream, New Jersey and Sawgrass Mills, Florida and has now exchanged contracts on a store in State Street, Chicago.
The company also had good news on the operating margin in the first half as it rose to 11.7%, which was well ahead of the year-ago margin of 9.8%. This was driven by “a weaker US dollar on contracted purchases, better buying and tight stock management.” It had already said that the effect of a stronger US dollar on purchases will reduce the margin in H2, but it now expects “a higher offset from better buying and lower markdowns” and its full-year outlook is for a year-on-year increase in margin.
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