Primark upbeat as sales rise and margins stay strong
Primark continues to be the growth driver for its parent company Associated British Foods. The business on Thursday issued a year-to-date trading update and said that while group revenue rose 3% (constant currency) or 2% (actual exchange rates), Primark easily outstripped those figures.
ABF said that the 40 weeks up to June 23 saw Primark total sales rising 6% (constant currency) or 7% at actual exchange rates, boosted by increased retail selling space. The growth was marginally lower in Q3 than the performance delivered in the first half, but this doesn't seem to be cause for concern as the company said it “reflects the later phasing of space growth this year.”
In fact, like-for-like sales in the latest quarter improved on those for the first half, driven by better trading across the eurozone. Sales from its first four stores in Italy continued to be very strong. The UK business performed well and delivered growth in like-for-like sales, although it was lower than that achieved in the first half. And the company also said it’s “encouraged by the trading in the [downsized] stores at Freehold and Danbury in the US.”
The operating margin in the first half was 9.8%, just shy of the 10% achieved in the same period last year “with better buying virtually offsetting the adverse effect of the US dollar exchange rate on purchases.”
The company expects the margin in the second half to be “well ahead of” H1 and last year “with the continued benefit of better buying and also the beneficial effect of the weakening of the US dollar exchange rate on purchases.” Stock has been tightly managed and markdowns, “although higher than the very low level achieved last year, will be better than previously expected and as a result, the profit from Primark will now be higher than expected.”
Retail selling space increased by a net 0.8 million sq ft since the beginning of the financial year with 358 stores now trading from 14.7 million sq ft of space. Seven new stores were opened, in Munich, Metz, Antwerp, Valencia, Tilburg, Burnley and Westfield London.
It expects to add a further 0.1 million sq ft of selling space by the end of this financial year, with a new store in Brooklyn, its ninth store in the US, and a relocation to a larger store at Islazul Madrid. The opening of new stores at Toulouse and Ingolstadt have been delayed and are now expected early in the next financial year.
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