Primark comp sales fall but margins rise; US, UK improve but Germany struggles
today Feb 25, 2019
Primark’s trading updates and results reports are closely watched at the best of times. But when it feels like it’s actually the worst of times - when the devastation on the high street is about as intense as it’s been in years - they’re even more under scrutiny.
Everyone wants to know how the most successful players are faring as they’re a benchmark for the industry. If they’re struggling, it’s really bad news.
So is Primark struggling? No, but it’s not booming either. Its first half sales are expected to end up 4% ahead year-on-year, which may not be spectacular but is certainly impressive in the tough conditions of today.
It said Monday that the 24 weeks to March 2 saw that uplift of 4% both currency-neutral and at constant exchange rates, driven by increased retail selling space. But dig deeper and we discover that this was “partially offset by a 2% decline in like-for-like sales.”
That may not be good news, but with Primark not having the safety net of a webstore operation to skew the figures upwards, it’s not a bad result. And the company’s owner, Associated British Foods, also said that “with a much higher margin, profit is expected to be well ahead of the same period last year [while] early trading of the new spring/summer range has been encouraging.”
Looking at the report in more detail, the company said that the “UK continued to perform well and we substantially increased our share of the total clothing, footwear and accessories market, with sales 2% ahead of last year. Cumulative like-for-like sales have improved since the January trading update. The effect of low footfall in November was offset by good trading in all other months, and like-for-like sales are expected to be level with last year in the first half.”
Sales in the Eurozone are expected to be 5% ahead of last year, with particularly strong sales growth in Spain, France, Italy and Belgium. But once again, comparable sales will be down with expectations of a 3% drop.
What’s the problem in Europe? It seems Germany is an issue. “In Germany we have strengthened management and plan focused marketing to address trading which continues to be difficult,” the company said. “Preparations are under way to reduce selling space at a small number of German stores in order to optimise their cost base.”
But the US business seems to be improving, although it’s still loss-making. The company said strong sales were driven by “excellent trading at our recently opened Brooklyn store, combined with like-for-like sales growth. This, coupled with the benefit to store profitability arising from the reduction in selling space at Freehold and Danbury last year, has much reduced the US operating loss.”
As expected, "the effect of a weaker US dollar on purchases contracted for the first half benefited input costs. With better buying, tight stock management and reduced markdowns, operating margin for the first half is consequently expected to be well ahead of last year.”
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