New stores drive Primark upwards but comp sales growth is elusive
today Nov 5, 2019
The results announcements from Associated British Foods are always worth tuning into because the company owns the giant Primark operation, which has been rolling out around the world. And on Tuesday, it gave us the full-year results for the chain. So what did we discover?
Well, it seems that the company’s sales and profits are continuing to rise, but it hasn't had it all its own way and it has driven sales growth mainly through new selling space with like-for-like sales dropping in many markets.
Looking at the parent company, revenues were 2% higher than last year at £15.8bn and adjusted operating profit was 1% ahead at £1.42bn with Primark one of the drivers of this growth, despite a few challenges. The 52 weeks up to September 14 were “resilient” with strong profit growth at the chain and continued expansion for the value-focused fashion retailer.
SALES UP BUT COMPS DOWN
The retailer, which still doesn't sell online, saw revenue rising 4.2% to £7.79bn at actual exchange rates and 4.1% at constant currency. While this was partially offset by a 2% decline in like-for-like sales, it helped drive its adjusted operating profit 8% higher to £913m as its adjusted operating profit margin rose to 11.7% from 11.3%.
It achieved “another year of substantial market share growth in the UK” with a 2.5% sales rise, driven by new store openings. But UK like-for-likes dropped 1%, even though they outperformed a weak total fashion retail market
Sales in the eurozone were 4.8% ahead at constant currency, with “excellent sales growth in Spain and France and strong performances in Italy and Belgium”.
Yet selling space increased by a much bigger 8%. While the contributions from its new stores in Bordeaux, Seville and Ljubljana exceeded its expectations, the region’s like-for-like sales dropped 2.9% on a weak performance in Germany. A new managing director is now in-role there and is leading initiatives that include targeted local marketing campaigns and the reduction of selling space in some stores.
Excluding Germany, eurozone like-for-likes fell 1.1%, but it’s seeing an improving trend “which delivered positive like-for-like sales in the final quarter”. And full year LFL growth was achieved in Spain, Portugal, France and Italy.
Its US business delivered “strong sales growth” which, coupled with lower operating costs, resulted in a “significantly reduced” US operating loss. The sales increase was driven by like-for-like growth and “excellent trading” at the Brooklyn store, which opened last summer. The selling space reduction in three stores has also “established a profitable contribution in each store”.
“The positive reception by US consumers to Primark, combined with our profitable store model, gives us confidence for further expansion in the US market,” the company said. Two further US stores will open in the new financial year, at American Dream in New Jersey in the spring, and Sawgrass Mills, Florida in the summer.
The company also said that during the year, its buying team delivered a further improvement in margin, driven by “on-trend ranges, better buying and reduced markdowns”. And this was all helped by effective marketing with digital campaigns, its social media channels now boasting 20m followers, up from 13m last year. It also successfully collaborated with high-profile influencers with whom it launched special collections throughout the year, generating further social media reach.
For the year ahead, the company will continue its marketing drive and will also open more new selling space. Major new stores will include Paris Plaisir, Lens and Calais Cité Europe in France, Milan Fiordaliso in Italy, Barcelona Plaza de Cataluña and Seville Lagoh in Spain and Trafford Centre in the UK. Its first store in Poland will open in Warsaw in the spring, taking Primark to its 13th country.
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