Primark bounces back, but global city centre stores still slow
Primark’s owner had good news on Monday as Associated British Foods said trading in Q4 “exceeded expectations”.
The company issued an update ahead of its year-end on September 12 and said that with all Primark stores having reopened from May to July, Q4 trading has been “strong”. In fact, in the latest four-week UK market data for sales in all channels, Primark achieved its highest-ever value and volume shares for this time of year.
Not that everything is perfect. The company still has a lot of catching up to do as it doesn’t sell online and so was losing hundreds of millions of pounds in sales every moth during lockdown. And company-wide earnings will be down significantly year-on-year. It also said total customer spend on clothing, footwear and accessories in its markets has been impacted by Covid-19.
Yet the story on trading is undeniably encouraging. Cumulative sales since reopening to the year-end are expected to be £2 billion and Primark’s own adjusted operating profit on an IFRS16 basis for the year, before exceptional items, is now expected to be at least at the top end of the previously advised £300 million-£350 million range.
The company also said the average basket size was initially significantly higher, reflecting some pent-up demand. And while this outperformance has reduced in recent weeks, it remains higher than a year ago. Primark has managed to avoid an excessive level of markdowns too.
And while normality still seems to be a long way away for many companies, ABF said that compared to pre-Covid, Primark’s sales performance since reopening “has in aggregate been reassuring and encouraging”.
STRUGGLING CITY CENTRES
The performance by each store has varied however, “reflecting the current circumstances of our customers, including increased home working, less commuting and much less tourism”. Sales in retail parks are higher than a year ago. Shopping centre and regional high street stores are broadly in line with last year. But large destination city centre stores, which are heavily reliant on tourism and commuters, have seen “a significant decline in footfall”. Its 16 largest destination city centre stores contributed 13% of total sales pre-Covid and only 8% of sales after reopening.
The impact on these once-mighty stores can be seen from the fact that in the UK, sales since reopening are expected to be 12% lower on a like-for-like basis, but if the four large UK destination city centre stores are excluded, the decline is a mere 5%.
Meanwhile sales in Europe are expected to be 17% lower on a like-for-like basis, reflecting increased public health restrictions, particularly in Spain and Portugal. Again, the city centre impact is key and excluding its 11 destination city centre stores, like-for-like sales are down 13%.
Sales in the US are expected to be 9% lower on a like-for-like basis but are actually 2% ahead excluding its Boston store.
There was good news on the exceptional charge of £284 million against inventory that it noted at the half-year stage. The “earlier than expected reopening of the stores and stronger than expected trading over the summer has allowed us to sell the stock in-store and a significant proportion of the stock on hand,” it said. As a result the book value of SS20 inventory that will be carried into next year is now expected to be only some £150 million and total year-end inventory levels will be much lower.
The cash generated by the sale of this stock on hand is the major contributor to its better net cash balance at the year-end. It also said current orders being placed are benefiting from recent weakness in the US dollar.
On store openings, the firm said the programme planned for the second half has been understandably delayed. But since its last trading statement a further three stores have been opened: Plaisir and Belle Épine in Paris and Warsaw, Poland. Initial trading has been “very strong, particularly in Warsaw”. It also opens a new store in Strasbourg, France on Tuesday.
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