Value fashion retailer Primark is on track to achieve sales of £9bn for the year, its owners Associated British Foods (ABF) revealed in an update to the market today.
Sales are expected to be around 15% ahead of last year (UK 11%, Europe excluding the UK 18%), with like-for-like sales growth of 9%, in the 52 weeks to 16 September.
ABC said sales growth has been driven by “selective price increases”, well received ranges and strongly performing new stores.
Full year results have also been buoyed by strong fourth quarter sales growth, forecast to be 15% with like-for-like growth of 8%, the high street retailer revealed.
In the UK, sales for the fourth quarter are predicted to be up 8%, with like-for-like sales expected to be up 7%. The retailer said “unusually variable and unseasonable weather especially in July, then in the first half of August, and again in more recent weeks”, has impacted transactions and footfall.
But despite this, Primark’s share of the UK market has increased to 6.4%, from 6.2% for the 12 weeks to 20 August, according to Kantar figures for the 12 weeks ending 20 August.
Clearly in a tough economic climate, with higher costs and potential further interest rate hikes on the cards, its value proposition remains a highly competitive USP as consumers keep tighter control on their expenditure. Value ranges were a strong driver of growth at supermarket Asda, also revealed in recent trading figures.
ABF has updated the market prior to entering a closed period for its full year results, which are scheduled to be announced on 7 November 2023.
INTERNATIONAL SALES
In Europe excluding the UK, sales for the fourth quarter are expected to be 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.
In the US sales are expected to be 45% higher in the fourth quarter driven by the strong programme of new store openings.
STORE ESTATE
Primark opened eight stores since its last update comprising four in the US and one each in France, Spain, Poland and Romania. Today it opens a store in Melilla, the Spanish territory in North Africa, and a new store in Salisbury, UK, is due to open tomorrow.
At the end of this financial year, the retailer expects to be trading from 432 stores with 18.2 million sq ft of selling space, an increase of 1.1 million sq ft of selling space before a reduction of 0.2 million sq ft in selling space in its German estate.
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 second half adjusted operating profit margin to be slightly below 8% and for the full financial year to be around 8%.
DIGITAL OFFER
Primark has held out when it comes to digital, still not offering its customers the ability to buy online.
Increasing costs, including higher return rates, make it tough for fashion retailers (particularly in the value sector of the market) to make decent margins online.
But Primark has been dipping its toes in the digital world, with a trial of Click and Collect, which it reveals it has now extended to womenswear. It’s a clever strategy and one that works well for high street stalwart Next, forcing customers to take-on the cost of delivery and returns.
In addition, Next finds that when customers pick-up in store, basket transaction value increases as shoppers get tempted by other products when visiting the shop. It’s no coincidence that Click-and-Collect tills are located at the back of stores or in basements.
In its outlook for 2023, ABC said the Group overall continues to trade well, managing inflation, recovering cash margin and continuing to drive sales in a challenging macro-economic environment.
WHO IS ASSOCIATED BRITISH FOODS (ABF)?
From a bakery founded in 1935, Primark’s owner Associated British Foods (ABF) plc has grown to become a highly diversified group which includes retail (Primark), as well as food and ingredients businesses such as household brands Twinings, Ovaltine and Kingsmill. In 2022, ABF made £17bn in group revenue, with £1,435m in adjusted operating profit.
In its outlook for Primark, the Group said it continues to expect 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.
“We therefore expect Primark adjusted operating profit margin to recover strongly in the next financial year,” it added.
