Primark still powering ahead in UK, Europe and US

An update ahead of its final results showed on Tuesday that Primark continues to be a major driver of success for its owner Associated British Foods.

The company will release results for the year to 16 September on 7 November, but for now it has said that “this financial year is slightly better than previous expectations”. It had earlier said group adjusted operating profit would be “moderately ahead of last year” but didn’t on Tuesday specify how much better the final figure will be.

For its key Retail division — that is, Primark/Penneys — sales are expected to be around £9 billion for the 12 months, 15% ahead of sales last year with like-for-like sales growth of an impressive 9%.

It has seen “strong” Retail fourth-quarter sales growth that’s expected to be up 15%, with like-for-like growth of 8%. This has been driven by “selective price increases, well received ranges and strongly performing new stores”.

It also expects a “substantial recovery in gross margin as a result of lower material costs, the weakening of the US dollar against sterling and the euro and lower freight costs, all of which have improved in recent weeks”. It also means Primark’s adjusted operating profit margin should recover strongly in the next financial year.

STRONG FOURTH QUARTER

For Q4 that ends next week, UK sales should be up 8% with like-for-like sales expected to be up 7%. During the quarter, it faced “unusually variable and unseasonable weather especially in July, then in the first half of August, and again in more recent weeks, all of which impacted transactions and footfall”. But despite these conditions, its performance was “resilient”. And it said its share of the UK market increased to 6.4% from 6.2% for the 12 weeks to 20 August (based on Kantar figures).

Meanwhile in Europe, Q4 sales should be a powerful 18% higher with like-for-like sales expected to be up 9%. Similar to the UK, “the business traded well despite challenging weather with especially hot conditions in several regions across Europe”.

And topping that, US sales should be up 45%. That’s being driven by new stores with the firm having added four during the period.

As mentioned earlier, full-year Retail sales should be 15% higher. Within that, the UK should rise 11% and the rest of Europe 18%. Meanwhile the 9% like-for-like full-year sales rise should include an 11% hike from the UK and 8% from the rest of Europe.

The company continues to open new stores and as well as the four unveiled in the US during Q4, it opened one each in France, Spain, Poland and Romania. On Tuesday it opens a store in Melilla, the Spanish territory in North Africa, and its new store in Salisbury, UK, is due to open on Wednesday.  The company added that its plans to “restructure and grow our business in Germany are progressing well”.

It all means that at the end of this financial year it should be trading from 432 stores with 18.2 million sq ft of selling space, an increase of 1.1 million sq ft before a reduction of 0.2 million sq ft in selling space in its German estate.

And its digital toe-in-the-water is still progressing with the click & collect trial having been expanded to new stores and womenswear having been added for the new season.

The company added that its performance “continues to benefit from the ongoing success of celebrity and influencer collaborations” and a new international fashion collaboration will be revealed later on Tuesday in New York.

But it wasn’t all good news as the retailer said the adjusted operating profit margin will be weaker in the second half of the financial year due to higher-than-expected stock loss from stores across the estate and a modest amount of German restructuring costs. It now expects H2’s adjusted operating profit margin to be slightly below 8% and for the full financial year to be around 8%.