Primark has strong first half, reduces US losses significantly
Primark’s results always make interesting reading and on Wednesday, its interim figures for the 24 weeks to March 2 gave no hint that the retailer is seeing a slowdown in its powerful growth.
Its parent company, Associated British Foods, delivered what it called a “robust set of results”, although a 1% rise revenue rise to £7.532 billion wasn’t exactly impressive. Yet within that, Primark’s growth managed to easily outstrip the group’s other divisions and showed that it’s a growth star, even though it still has no webstore (and appears to have no plans to open one yet, despite a flurry of rumours to the contrary).
The parent firm’s adjusted pre-tax profit was flat at £627 million but Primark itself outperformed. CEO George Weston hailed its strength and said it “delivered excellent profit growth, driven by further development of our customer experience and selling space expansion.”
Primark saw adjusted operating profits rising 25% to £426 million, “reflecting its continued selling space expansion and improved margins, which were driven not only by favourable exchange rates but also by better buying,” we’re told.
Sales at the division rose 4% to £3.6 billion and sales growth should continue with early customer reaction to its SS19 offer having been “encouraging”.
While increased retail space drove the revenue growth, like-for-like sales actually declined by 1.5%, but this clearly didn’t hurt earnings as the company was able to benefit from a “much higher margin”. The operating margin was 11.7%, well ahead of the same period last year when it was 9.8%.
COUNTRY STRENGTH AND WEAKNESS
Importantly, the company said that “the UK continued to perform well” in H1. Sales were up 2.3%, and like-for-like sales even grew, albeit by only 0.6%. Its share of the total clothing, footwear and accessories market increased “substantially.” The effect of low footfall in November was offset by good trading in all other months, with strong growth in the last two weeks as milder temperatures compared to a spell of very cold weather last year.
Sales in the Eurozone were 5.3% ahead of last year currency-neutral. But like-for-like sales fell 3.2%, driven by the decline in the German market and also weaker November footfall everywhere.
Particularly strong sales growth was seen in Spain, France, Italy and Belgium. But Germany remains a problem. In that country, ABF has “strengthened the management team to address the trading which continues to be difficult.” Preparations are also under way to “cut selling space at a small number of German stores in order to optimise their cost base,” which underlines the extent of the issues in that market.
But the company said “it was pleasing to gain substantial share in competitive European retail markets.”
And the US? Its business there continued to perform “strongly, driven by excellent trading” at the recently opened Brooklyn store combined with like-for-like sales growth. Not that it’s profitable yet. “Coupled with the benefit to store profitability arising from the reduction in selling space at Freehold and Danbury last year," its comp sales rise resulted in a “much-reduced US operating loss.”
The importance of Primark to ABF can be seen from the fact that overall capital expenditure was £382 million for the group and over half of this was spent on Primark's expansion.
And the brand continues to grow its footprint, despite some downsizing, and said that Ljubljana will be its first store in central Europe. It has also now signed leases for its first stores in Poland and the Czech Republic.
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