Primark continues recovery but sales still below pre-Covid levels
A trading update from Primark parent Associated British Foods on Thursday showed that the fashion retail chain is bouncing back from the pandemic.
In the 16 weeks to January 8 — Q1 of its 2022 financial year — ABF’s retail division revenue was £2.672 million, up 32% year-on-year as reported and 36% at constant currency. That recovery is understandable given that in the previous year it endured widespread closure of its stores in the UK and Europe.
It's still not back to pre-Covid trading levels though. Total Primark sales this period were 5% lower than two years ago and like-for-like sales were 11% down.
Yet it's clearly heading in the right direction with the business still a hugely popular physical stores-based operation as it was in more in normal times.
It’s biggest challenge for now remains footfall to its large city centre flagships. It said stores in retail parks and town centres continued to outperform destination city centre stores in Q1. But at least like-for-like sales in retail parks were ahead of pre-Covid levels.
Sales in the UK stores were well ahead of last year, and although like-for-like sales were still 10% below two years ago, they improved on FY21’s Q4. Trading was “impacted by a decline in footfall as a result of the rapid rise in Omicron cases but has improved in recent weeks”.
In Continental Europe, sales were also well ahead of last year, but like-for-likes were 14% below two years ago, Omicron again being blamed. However, total sales were only 2% below two years ago due to an increase of 12% in retail selling space. It estimates a sales loss of some £30 million linked to store closures in Austria and The Netherlands during the period.
Its US business — which had seen some sceptics doubting its ability to conquer the retail market in that country when it first launched there — was “the standout performer” and delivered 4% like-for-like sales growth in the period compared to pre-Covid levels. Total sales were 37% ahead of two years ago.
So what does this all mean for profits? The operating profit margin in the period was ahead of its expectations and should be over 10% at the half year. This reflects “a recovery in sales densities”.
It’s good news that the effect of inflationary pressure on raw materials and supply chain in Q1 has been “broadly mitigated by a favourable US dollar exchange rate compared to last year and a reduction in store operating costs and overheads”.
And further good news came as it said the pressure of supply chain disruption in the autumn “has alleviated” although it’s still seeing some delays in dispatch at ports of origin and expects longer shipping times to continue for a while.
It also said it’s “proposing to simplify our in-store UK retail management structure as part of our ongoing programme to improve the efficiency of our store retail operations”.
Another part of its efficiency drive, the rollout of the Oracle stock management system across its stores is “progressing well and we expect all stores to be equipped with state-of-the art point of sale terminals by the end of 2022”.
And it’s on track to launch its “new, improved customer-facing website in the UK by the end of March, and across all markets by the autumn”. The new website will showcase many more products and provide customers with product availability by store. But it won’t be transactional and the company remains a rare big name not selling online.
With physical stores its key focus, over the last two years, since the start of the pandemic, it has opened 25, lifting its retail selling space by 7%. It expects to add a net 0.5 million sq ft of selling space this financial year. It’s “making good progress with new store signings, with a particular focus on the major markets of the US, France, Italy and Iberia”.
Since the start of the financial year, it has signed a number of leases including a new store in the centre of Bucharest — its first in Romania — which, with Slovakia, will take Primark into 16 markets.
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