Comp sales, margins dip at Primark but totals strong, plans Florida debut in US
Associated British Foods offered up its results for the half-year to March 3 on Tuesday and while some in the fashion sector might say “who?”, the fact that it owns Primark is big news for the industry.
So was it another story of growth, growth and more growth? And how are its US ops going? To answer the first question yes and no. Sales did rise strongly but comparable sales dipped, and the margin edged down ever so slightly as the last half proved extra-tough. However, the company clearly has a lot going for it and remains bullish on its prospects.
And while detail on the US is (as usual) scarce, the company is expanding geographically with plans to open in Florida next year.
Overall parent company revenue rose only 2% to £7.422 billion and adjusted operating profit fell 1% to £648 million, while statutory operating profit was down 3% to £618 million.
But that was with the foods businesses and one-off issues included. Strip that out and get to Primark alone and the picture painted is better.
It “performed well with profit growth of 4% achieved against a backdrop of unseasonable weather in Europe and a margin decline following the adverse effect of currency on purchases,” the company said.
In fact, ABF thinks Primark’s UK performance “was remarkable in the circumstances [as it] delivered a strong increase in our share of the total clothing market.”
And looking ahead, it expects profit growth to accelerate with the continuation of its retail selling space expansion and an improvement in margin following the recent strengthening of sterling against the US dollar.
Revenue for Primark was up 8% on a reported basis to £3.477 billion and up 7% at constant currencies, with that adjusted operating profit rising 4% at constant currencies and 6% on a reported basis to £341 million.
The sales rise was largely driven by the expansion of selling space and the bad news was that comparable sales dipped 1.5% for the 24-week period. As with many of its fashion sector peers, sales were held back by a warm October, leading to “a significant decline in the like-for-like measure in that month.”
The last week of the half-year period was also challenging with freezing temperatures across Northern Europe just as it was trying to sell spring fashion. Encouragingly though, comp sales for the 15 weeks to 24 February 2018 delivered growth of 1% "and record sales were achieved in the week before Christmas."
Early customer reaction to the spring/summer range “has been encouraging” too, it told us.
And while Primark doesn’t sell online, it does think digital, saying that its following on digital and social media “grew strongly again. Our website and these social channels are increasingly relevant to our customers, building awareness of our brand and product, and drawing them into our stores.”
As mentioned, the brand did well in the UK in the last half, while sales in Continental Europe were 6% ahead of last year, mainly driven by increased retail selling space, but partially offset by comparable sales declines in Northern Europe.
And the US business? The company often gives little detail about it and this time said simply that the business there “made progress in the period” and that it continues “to refine the operating model of our stores in the North East."
Importantly though, it’s starting to move beyond that North East base and it expects to reach an agreement soon to open a store in Sawgrass Mills, Florida, in late 2019 "which will provide the opportunity to trade in another type of retail environment, in both mall format and geographic location, to our existing stores.”
PROFITS AND STORES
In the first half, the operating margin was 9.8% compared to 10% in the same period last year “with better buying virtually offsetting the adverse effect of the US dollar exchange rate on purchases.”
The company said that stock was tightly managed in the period and markdowns were in line with those of the first half last year.
And it expects “an acceleration” in Primark profit growth in H2 as a result of an improvement in margin over the same period last year.
This will be driven by “better buying and some benefit of the recent weakness of the US dollar which will more than offset an expected return to a more normal level of markdowns, compared to the very low level achieved last year.”
And the company will continue to add new space. Retail selling space increased by 0.4 million sq ft since the financial year end and at March 3, it said 352 stores were trading from 14.3 million sq ft, up from 13.1 million sq ft a year ago.
Seven new stores were opened in the period: Bielefeld, Münster and its second store in Stuttgart in Germany; Charlton and Staines in the UK; Loulé in the Algarve, Portugal; and Le Havre in France.
It still expects a total of 1.2 million sq ft of new selling space to be added in this financial year, and “a strong programme is planned for the second half.” It has already opened a new store in Metz, France, and some extended stores in the UK.
The new stores planned for the remainder of this financial year are Toulouse in France, Munich and Ingolstadt in Germany, Antwerp in Belgium, Valencia in Spain, Brooklyn in the US, Tilburg in the Netherlands, Burnley in the UK and in the Westfield London shopping centre at White City.
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