Primark: mixed year on sales, new stores due in US, France, Spain, Poland
Primark’s owner issued a trading update on Monday and it contained both good news and bad, showing that one of the strongest names in value-focused fashion can still grow its sales but is also facing the same challenges as its peers.
Just ahead of the year-end, Associated British Foods said that full-year sales at its Retail division (that is, the Primark chain) are likely to be up 4% both on a reported basis and currency-neutral for the 12 months. That's the good news.
But less pleasing is the fact that this is being driven by increased selling space and on a like-for-like basis, sales will be down 2%.
Yet it said Q4 sales growth has been faster than in the previous nine months of the financial year due to an improving like-for-like performance, while early trading of the new AW19 range “has been encouraging”.
It's also encouraging that Primark has “performed well” in the UK even though the country’s fashion market has been weak. Not that like-for-like sales have risen there, but the decline hasn't been as bad as some rivals have seen.
“We continued to deliver a significant gain in market share, with sales growth of 3% and a like-for-like sales decline of 1%,” it said, adding that “we have been encouraged by our customers' reaction to our new store in Birmingham High Street which showcases our full product range and new food and beverage and beauty services.”
EUROPE UPS AND DOWNS
The chain is doing fairly well at the moment in the eurozone and full-year sales are expected to be 5% ahead of last year currency-neutral, with “particularly strong sales growth in Spain, France, Italy and Belgium”.
The contribution from its new European stores exceeded its expectations. But eurozone like-for-like sales fell by 3%, with a weak performance in Germany where it has now “strengthened management and initiated focused marketing”.
And its important market in terms of future growth potential – the US – “continued to deliver strong sales growth, driven by excellent trading at the Brooklyn store, which opened last summer, and [by] like-for-like growth”.
But while the American business remains loss-making, the firm’s increased sales and the lower operating costs due to the selling space reduction in three stores, “will result in a significantly reduced US operating loss”.
Its 10th US store at American Dream, New Jersey, will open this autumn to be followed by Sawgrass Mills, Florida, later in 2020 and it has exchanged contracts on a store in State Street, Chicago.
So what does all this mean for profit margins? The first-half operating margin of 11.7% easily beat last year’s (9.8%) as a weaker US dollar, “better buying and tight stock management” all helped.
However, the H2 margin will be dented by the stronger US dollar. “Stock has continued to be managed tightly and markdowns in the second half are now expected to be in line with the good performance last year,” it said. "Our full-year outlook for operating profit is unchanged, with margin ahead year-on-year.” Currency issues will “increase the cost of goods for next year”.
As mentioned, the company has continued to add new selling space and is planning to carry on with that strategy in the year ahead. It will add a net 1 million sq ft. France and Spain will see the most space added and it expects to open 19 new stores, together with a number of relocations and extensions.
The major new stores will include Paris Plaisir, Lens and Calais Cité Europe in France; Milan Fiordaliso in Italy; Bilbao Gran Via, Barcelona Plaza de Cataluña and Seville Lagoh in Spain; Rotterdam Forum in the Netherlands; and Trafford Centre in the UK. Its first store in Poland will open in 2020 in Warsaw, taking Primark to its 13th country.
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