Pandemic dents Primark, but its bouncing back, will grow store numbers to 530
Associated British Foods’ results for the 53 week to 18 September show how hard its star Primark brand was hit during the pandemic, but also just how well it’s bouncing back.
Primark’s like-for-like sales were down 12% on pre-pandemic levels but it’s seen a strong profit margin recovery of late with the second-half margin up 10.6%.
As of today, all of the firm’s Primark stores have reopened and “customers have returned to stores in large numbers”.
Like-for-like sales, compared to pre-Covid levels, are steadily improving “as customers' appetite to return to shopping and city centres increases and, over the medium-term, as foreign and domestic tourism recovers”.
Next year, the firm expects Primark to increase sales “significantly along with a sharp improvement in adjusted operating margin, recovering to above 10%” as long as there are no further pandemic restrictions.
In September, Primark also launched a wide-reaching new sustainability strategy and believes this strategy “can be implemented without any significant movements in the Primark profit margin over the longer term”.
The retailer also sees “further growth potential in all of its existing markets, and in some new markets besides. In particular, it will accelerate expansion in the US, France, Italy and Iberia”. It aims to grow from its current 398 stores to 530 over the next five years.
So what happened in the last year? Primark’s revenues dropped 5% to £5.593 billion. That was no surprise due to enforced store closures. And adjusted operating profits fell 11% to £321 million, but rose 15% to £415 million excluding repayment of government Covid support money in a number of countries.
But the revenue figure was flattered by the inclusion of a 53rd week in this financial year and the firm lost a third of the usually-available trading days due to lockdown restrictions.
This compared with the loss of a quarter of available trading days a year ago. But despite this lower number of trading days, sales and profits still held up well when stores were open And the operating profit margin improved during the year from 1.9% in the first half to 10.6% in H2, excluding the 53rd week.
Overall, the company estimates it lost around £2 billion in potential sales in the year. Yet while those like-for-like sales were down 12%, when destination city centre stores are excluded, they only fell 7%.
Trading varied considerably across the estate. In the UK, sales were affected by the number of people required to self-isolate following contact-tracing alerts. When the self-isolation rules were eased, like-for-like sales improved from a decline of 24% in the first four weeks of the relevant quarter to a decline of 11% in the last four weeks.
In Continental Europe, like-for-like sales were impacted by Spain and Portugal seeing a decline in foreign tourism.
Its US business “performed well” and delivered a good profit margin. Like-for-like sales consistently improved and were up 6% against two years ago, excluding the city centre Boston store. It believes “Primark is clearly resonating with the US customer and brand awareness continues to build”.
This was especially evident in the strong trading at all the new stores opened during the year and the wider US performance gives it “confidence to increase the pace of expansion in this important market”.
Sales of its AW21 ranges have started well and sales densities continue to improve. ABF said Primark has capitalised on the continued trend for 'comfort living'. And the Primark Edit of “quality investment pieces for women has proven very popular since launch in September, with strong sales of its seasonal staples such as cotton cashmere jumpers and a classic trench coat driven by promotion on Primark's social channels”.
That latter point highlights how digital is becoming increasingly important. Not that this means a webstore is due any time soon. Rather it’s behind-the-scenes digital innovation and that soon-to-launch customer-facing website. The new site will showcase those products that customers expect to be able to browse online, before they go into the stores, “with much richer product information and imagery for every product shown”. This should take in around 70% of its total range, substantially up from some 20% on the current site.
The new site will then enable customers to research product availability in their local store and the initial response from consumer testing has been positive.
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