Primark hit by Q4 Covid issues but recovery is happening
A trading update from Primark owner Associated British Foods showed the value fashion retailer is on the recovery trail, with higher profit than a year ago and like-for-like sales in Q3 beating the comparable period two years ago, although Q4 reversed some of that gain due to new restrictions.
Total sales in the second half of the 53 week-year to September 18 should come in at £3.4 billion when the figures are finally tallied and that Q3 like-for-like performance was up 3% two-year-on-year.
The company cited “very strong trading in the UK and those European regions where stores had reopened”.
Primark took a bigger hit to sales than many of its peers at the height of the pandemic as the firm doesn’t trade online. However, when stores reopened, it was also one of the most popular destinations for physical shoppers.
But what about that Q4 downturn? Sales were affected by lower footfall as a result of changes in public health measures in its major markets as the Delta variant took hold. Q4 was quite different in various markets “with a big impact” in the UK and Spain.
But sales improved as the period progressed and Q4 like-for-like sales should be ’only’ 17% lower than the same period two years ago.
Looking at some of those countries in detail, in the UK, the so-called pingedmic saw many contract-tracing alerts forcing people to self-isolate. Primark sales were dented in late June and early July. But August picked up and drove it from a decline of 24% in the first four weeks of the quarter to a decline of 8% in the last four weeks.
In Continental Europe, the performance in Spain and Portugal was caused by there being fewer holidaymakers. In addition, tight restrictions on store customer numbers were in place in Portugal for most of the period. Like-for-like sales for both markets dropped 30%+ compared to two years ago.
In France, the requirement for the pass sanitaire, showing a personal immunity to Covid-19, was introduced in early August and also led to footfall declines.
But US like-for-like sales in the quarter, excluding the now-downsized Boston Downtown Crossing store, were 3% ahead of two years ago.
The company also said the quarter saw a continuation of the trend for 'comfort living' with “strong sales of leisurewear such as leggings and cycle shorts, and continued demand for seam-free matching separates for women”. And it saw a “good response” to the launch of new licensed product, such as the womenswear Disney paisley range. Sales of AW21 ranges “have started well” and its back-to-school ranges been strong.
Primark said its operating profit margin in H2, prior to the repayment of job retention scheme money, benefited from a "significant reduction” in store labour costs and lower store operating costs and is expected to be over 10%. Its forecast for full-year adjusted operating profit is now ahead of the profit delivered last year.
Looking ahead to its next financial year, the operating profit margin “will continue to benefit from lower store labour and operating costs”.
The year ahead should also be helped by new stores. It will open in Philadelphia in the US on 16 September after 15 European stores were added this year. Covid-19 restrictions have “held back progress in developing the pipeline of new stores” and it’s “experiencing some difficulty in accessing and evaluating potential sites and in negotiating with potential landlords”. But in the next financial year, it’s planning to add a net 0.5 million sq ft of additional selling space in Italy, Spain the US, Czechia and Ireland.
And it was interesting that the retailer is working to improve its digital operation, although it’s still not planning to sell online. It said that “digital has a critical role to play as part of Primark's marketing mix”. That means a “new and improved” customer-facing website.
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