Primark has tough first half but sees record sales after reopening
Primark was a big problem for its owner Associated British Foods in the first half as the enforced closure of many stores drove down revenues and profits.
The parent company saw a 17% drop in group revenue to £6.313 billion and adjusted operating profit fell 46% to £369 million in the 24 weeks to the end of February. Pre-tax profit fell 8% to £275 million.
CEO George Weston said most Primark stores were closed for more than half of the period. But he added that “Primark sales after store reopenings demonstrate the relevance and appeal of our value-for-money offering”. And last week’s sales in the key England and Wales market hit record levels as consumers flooded back into its shops once non-essential stores were allowed to reopen.
With Primark having no online operation to fall back on, the closure of it shops has meant the business effectively went into hibernation in multiple markets (although there was still a lot going on behind the scenes). But the company remains committed to its business model.
In the past year, Primark has lost £3 billion+ worth of sales and £1 billion+ of profit. It has also seen “huge cash outflows with a £650 million outflow in the first half of this year alone”.
THE FIRST HALF
Over the six-month period, Primark saw revenue of £2.232 billion, which was down 40% from a year earlier. And its adjusted operating profit was only £43 million, down 90%.
It was hit hard by UK and European lockdowns, but there was no point at which all of its shops were shut, unlike in the first wave of lockdowns. The company estimates that H1 ‘lost’ sales of £1.1 billion during closures, and restrictions while stores were open sent like-for-like sales down by 15%.
But the firm considers “this like-for-like performance to be strong” in the circumstances of lower category spend and stay-at-home advice.
The like-for-like performance in the UK was -6% in H1 and only -1% excluding four major city centre stores. Although stores remained open in a number of eurozone countries, in many cases they were subject to restrictions on trading hours and distances shoppers could travel. In some cases, the range of merchandise it was permitted to sell was limited. Consequently, the like-for-like performance in the first half in the eurozone was -20%.
It also said that UK like-for-like sales at its stores in retail parks were actually higher than a year ago in H1, while shopping centre and regional high street stores were lower than last year. And those large destination city centre stores, which are heavily reliant on tourism and commuters, “continued to see a significant decline in footfall”. Excluding its 16 major city centre stores like-for-like sales were -11%.
One piece of good news was that its US business “performed well and is now profitable”. It was helped by the fact that no stores had to close and its like-for-like sales performance was only a drop of 11% (or -3% excluding the city centre Boston store). And it’s “particularly pleased with the strong trading at the recently opened stores of Sawgrass Mills Florida, American Dream New Jersey and, during March, State Street Chicago”.
The company continues to be impacted by Covid measures. Scottish stores are still closed until next week and progress in the eurozone has been mixed. Some reopening dates have been delayed and some stores have reopened with restrictions, such as the Netherlands, Germany and Belgium. Trading there continues, “albeit at a much-reduced level”.
With closures during March and April and ongoing restrictions, it therefore expects to lose around £700 million in H2 sales. But as mentioned, it has seen record sales numbers after reopening in England and Wales.
Product-wise so far, it said demand for nightwear, lingerie and leisurewear has continued to be strong. However, compared to previous reopenings, this time “we have seen excellent demand for our fashion ranges, particularly womenswear”. Shoppers clearly believe that the current easing of lockdowns really do signal a more durable return to some kind of normality.
“Customer response to the new trends for spring/summer, which have featured on our digital social media channels, has been very strong,” it said.
And the company continues to add new space. It has a healthy pipeline of store openings across "a number of growth markets, with a particular focus on southern Europe and eastern Europe”. It sees further opportunity to expand in France, Spain, Portugal and Italy, “where the Primark brand resonates strongly with consumers”. It also has plans to accelerate its growth in the US over the next five years. It has just signed a lease for a new store in Tysons Corner, just outside Washington DC.
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