Primark in full recovery mode, plans selective price rises
Primark’s owner Associated British Foods (ABF) reported its half-year results on Tuesday and they showed that the value-focused fashion chain continues to recover well from the pandemic.
It also unveiled plans to move into new European markets, to expand further in some of its key European growth markets and to grow its US stores.
ABF said the 24 weeks to 5 March saw sales “well ahead of last year at constant currency”, with a 64% jump. Of course, that's no surprise given the lockdowns that were in place during the six-month period a year earlier as they meant that Primark essentially couldn't trade because it doesn't have a transactional website.
This time, the backdrop was much better with all stores open, except for short interludes in Austria and The Netherlands. That meant the operating profit margin recovered strongly and reached 11.7%, in line with pre-Covid levels.
The company said this was “primarily achieved by the recovery in store sales densities as footfall has increased and customers return to Primark”.
The effect of inflation in H1 was “broadly mitigated” by a reduction in store operating costs and favourable exchange rates. But like many others, inflation will mean “selective price increases” across some of its AW22 stock, although it’s still “committed to ensuring our price leadership and everyday affordability, which matters so much to customers”.
So what were Primark’s figures for the half? Revenue was £3.54 billion, up 64% (as mentioned) at constant currency and up 59% on a reported basis. Adjusted operating profit rose 863% in total to reach £414 million.
Like-for-like sales improved compared to Q4 of its 2021 financial year, although they were 10% lower than the pre-pandemic period. Total sales were 4% lower than pre-Covid, even though the company opened 27 stores during the period to boost its selling space.
Despite its general recovery, Primark was still affected by the Omicron variant, although like-for-like sales have since picked up “strongly” in the UK and Ireland. That said, recovery has been slower in mainland Europe were some restrictions continued for longer and consumer footfall was weaker.
H1 UK sales were well ahead of the prior year but remained 8% below two years ago, although they continued to improve since the first half ended. Stores in retail parks and town centres outperformed and footfall in its destination city centre stores even managed to pick up as more customers returned to work and socialise in city centres.
Despite some problems in mainland Europe, sales they were also well ahead of last year and were only 3% below two years ago in total, although like-for-like sales were 14% down, offset by a 12% increase in retail selling space.
And as in previous periods, its US business is soaring with total sales 37% ahead of two years ago and like-for-like sales also positive, albeit only up by 1%.
SHOPPERS SEEK HOLIDAY FASHION
And what are people buying? The chain has seen “strong sales of luggage and holiday essentials such as swimwear and sandals as customers return to holiday travel”. Sales of health & beauty also “staged a recovery as customers return to socialising and false eyelashes and nails performed particularly well with demand boosted by promotion on our social media channels”. And homewares benefited from more home entertaining.
The company added that customer reaction to its SS22 fashion ranges has been “very positive”.
It’s upbeat for the future too and its stock purchases for H2 are already largely committed. It expects some reduction in the H2 operating profit margin compared to H1, so the full-year margin will be around 10%.
It also said it’s continuing with its sustainability strategy and in the latest six months, the proportion of clothes sold that were made from recycled or sustainably sourced materials rose to 39% from 23% a year earlier.
And the company continues to make “good progress” with its store pipeline as it targets 530 stores within the next five years.
Its growth markets are the US, France, Italy and Iberia with more openings planned this calendar year. It will also enter the new markets of Romania and Slovakia, its 15th and 16th markets.
And Primark added that the “US will become a major market for us” as it opens yet more stores. In addition to the six new leases already announced, it has signed an additional three for upstate New York, New Jersey and its second store in the Chicago area.
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