Primark on the mend despite difficulties in the fourth quarter

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Felicia Enderes

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A trade update from Primark owner Associated British Foods showed the fashion retailer is on the mend, with profits higher than a year ago and like-for-like sales in the third quarter that surpassed the comparable period two years ago, albeit that fourth quarter canceled part of this profit due to new restrictions.

Photo: Sandra Halliday

Total sales for the second half of the 53-week year ended September 18 are expected to be £ 3.4 billion, according to preliminary figures. Like-for-like sales in the third quarter were 3% higher than in the same period of the previous year.

The company said there was “very strong trade in the UK and in the European regions where stores have reopened”.

Primark suffered a bigger drop in sales than many of its competitors at the height of the pandemic because the company does not do any online business. However, when the stores reopened, Primark was also one of the most popular customer destinations.

But how do you explain the decline in the fourth quarter? Revenues were impacted by lower visitor numbers resulting from the new restrictions in key markets following the appearance of the Delta variant. The fourth quarter was very different in the various markets, with the UK and Spain being particularly hard hit.

However, sales improved over the period, so like-for-like sales in Q4 should be “only” 17% below those of the same period two years ago.

Looking at some of these countries, the UK’s pingedmic system has forced many people who have been in contact with infected people to self-isolate. Primark sales were particularly hard hit in late June and early July. By August, however, the numbers were already better, down 8% in the last four weeks of the quarter compared to 24% in the first four weeks.

In continental Europe, the development in Spain and Portugal was due to the lower number of holidaymakers. In addition, Portugal had strict restrictions on the number of customers in stores for most of the reporting period. On a like-for-like basis, sales in both markets fell by more than 30% compared to two years ago.

In France, the so-called “pass sanitaire” was introduced at the beginning of August, which proves personal immunity to Covid-19 and also led to a decrease in customer frequency.

In the US, like-for-like sales in the quarter excluding the now downsized Boston Downtown Crossing store, however, were 3% higher than two years ago.

The company said the “comfortable” trend continued with “strong sales in casual wear such as leggings and cycling shorts and continued demand for seamless pieces for women.” The introduction of new licensed products such as B. a women’s line in partnership with Disney, was “well received”. Sales of the autumn / winter collection 21 “got off to a good start” and the range at the start of school also turned out to be strong.

Primark said that operating profit margin for the second half of the year, prior to the state’s job retention payment, benefited from a “significant reduction” in store labor costs and lower store operating costs, and is expected to be above 10%. The forecast for adjusted operating profit for the full year is now higher than last year.

Looking ahead to the next financial year, the operating profit margin should “continue to benefit from the lower wage and operating costs in the branches”.

The coming year should also benefit from new branches. On September 16, the company will open a store in Philadelphia, USA, after adding 15 European stores this year. The Covid-19 restrictions have “slowed the development of the retail network” and the company is “currently struggling to tour and evaluate potential locations and negotiate with landlords”. However, an expansion of the sales area in Italy, Spain, the United States, the Czech Republic and Ireland by more than 46,000 square meters is planned for the 2022 financial year.

It is also interesting that the retailer is working on improving its digital operations, even though it still has no plans to get into online retailing. The company stated that “digitization must play a critical role in Primark’s marketing mix”. That means a “new and improved” customer-centric website.

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