Primark drives H1 sales higher in UK, Europe, US, but H2 hit hard by Covid-19
Primark’s owner Associated British Foods released its half-year results on Tuesday, but the figures were overshadowed by the impact that the Covid-19 pandemic is having on its star retail chain Primark.
As the world starts to think about easing lockdowns, the company said that reopening it shops is likely to be a “complex” process as it works to ensure that both its staff and its shoppers are safe.
CEO George Weston also highlighted the struggles of its workforce and said: “Much as I would love to be allowed to reopen Primark stores across the UK, Continental Europe and the USA soon, because lockdown has so harmed our business and our supply chains, I know that we must not do so until we have suppressed this disease.
“And when we are allowed to reopen we must make our Primark stores safe for our staff and our customers, even if that means ensuring there are fewer people shopping at any one time and so accepting lower sales at least until the remaining risk is minimal. In time we can rebuild the profits. We can’t replace the people we lose.”
He added that he’s “in awe of the Primark teams for their care, good judgement and immense hard work as they have managed this crisis”.
It’s clear from the results for the 24 weeks to February 29 that the company should be able to continue prospering when things do get back to normal. It may not have been seeing booming like-for-like sales during the period, but it was doing much better than many of its fashion retail peers and was boosting market share.
Primark’s revenue rose 4% to £3.71 billion, although adjusted operating profit dipped 1% to £441 million. Pre-tax profits at Associated British Foods itself fell 42% to £298 million for the 24 weeks due to the impact of £284 million in excess stock that Primark won’t be able to sell.
During H1, the sales rise was driven by increased retail selling space but was partially offset by a 0.5% decline in like-for-like sales. Yet it saw a smaller than expected decline in margin.
In the UK, it delivered a further increase in market share, measured by value, of the total clothing, footwear and accessories market. Sales were 2.7% ahead of last year, driven by a good contribution from new selling space added over the last year but partially offset by a 1.7% decline in like-for-like sales. It said that although trading was particularly good over November and December, like-for-like sales "weakened in January and especially February against very strong comparatives in the prior year”.
Sales in the eurozone were 5% ahead of last year at constant currency with particularly strong sales growth in France, Belgium and Italy. Its new store in Milan traded ahead of expectations and its store in Ljubljana, Slovenia continued to trade strongly. There was a “marked upturn” in like-for-like sales performance for the eurozone which was 0.2% ahead in the period, continuing the improvement reported in the final quarter of last financial year. This was driven by “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”.
Its business in the US “continued to perform strongly, delivering like-for-like sales growth, with particularly strong trading at the store in Brooklyn, and recording a break-even operating result in the period”.
But it said “trading in our second half will be radically different” with countries in which it operates being in lockdown and its stores being shut, with no webstores to take up the slack.
The fact that much of the H1 sales growth came from new retail selling space is also an issue as the current opening programme is on hold.
The store opening programme planned for the third quarter meant 0.5 million sq ft of retail selling space should have been added. However, these openings have been delayed pending the reopening of existing stores and this will clearly affect the potential to drive sales higher in the months ahead.
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