Primark has good Christmas as it recovers from October dip

By

Sandra Halliday

Published
Jan 18, 2018

Primark is almost unique in major name retail chains in that it has to share the spotlight come results or update time with products such as the sugar ops and grocery brands its parent firm also owns.

But while it’s not the only focus of Associated British Foods’ portfolio, it’s certainly the star and that status was further underlined over the Christmas trading period as it outperformed its ABF stablemates.

On Thursday it said that in the 16 weeks to January 6, overall group revenue rose 4% on a currency-neutral basis, or 3% at actual exchange rates.

But Primark sales were 7% ahead currency-neutral and 9% at actual rates, showing that the company continued to attract new business in what was one of the toughest periods for both its core UK/Ireland market and across Europe.

It said that the UK “continued to perform well with strong like-for-like sales, a consequent strong increase in share of the total market, and trading which reflected the breadth of our consumer offering.”

Unfortunately, that strength was partly countered by the fact that sales growth across Europe was held back by unseasonably warm weather in October. 

That’s a problem that also hit the UK and it dealt a crushing blow to a number of other chains in Europe. But at least Primark managed to claw back most of the lost sales and it said that it saw “good trading" in Europe in the five weeks leading up to Christmas and “record sales” in the week before December 25. 

Of course, part of the sales rise was accounted for by new selling space. The company has increased its sales space by 0.3 million sq ft since its financial year end and on January 6, its 350 stores were trading from 14.2 million sq ft compared to 13.1 million a year ago. It expects to open 1.2 million sq ft this year.

Anyone looking for clues about the strength or weakness of the firm’s US business, about which there has been plenty of speculation, were disappointed with this update, as ABF only said that “trading in the US has continued to make progress.”

Analysts have suggested that primark hasn’t been as successful in the US as it might have liked and have cited relatively slow expansion there (plus some store downsizing) as evidence of this. But it looks like we’ll have to wait until interim results time to hear more.

What Primark did say on Thursday was that operating margins in the first half are now expected to be close to those of a year ago, “with better buying virtually offsetting the adverse effect of the weaker sterling/US dollar exchange rate on purchases.”

ANALYST VIEW

Despite the generally strong trading statement, ABF’s shares fell Thursday as other business units were weaker. And analysts said that even Primark has to be careful.

GlobalData’s Kate Ormrod said that unlike many retailers on the high street, Primark has shown it does not need the online channel to prop up its performance, but it “needs to be mindful of stores becoming a burden in the long run if it ever decides to venture online.”

However, in general she sees the chain as being on the right track and hailed its results in beauty. “[It] continues to show its strength outside of fashion, with its beauty offer gaining traction among shoppers, aided by greater breadth of ranges and enhanced in-store merchandising,” she said. “Regular newness and trend-led SKUs such as its new PHr sweatproof make-up range not only highlight its efforts to become a more authoritative destination for beauty but drive store footfall, enabling the retailer to encourage impulse spending across other, higher value categories.”