Analysts have offered mixed views on Primarks latest trading update

Analysts have offered mixed views on Primark's latest trading update

The forced store closures as a result of the current lockdown have left Primark estimating a GBP540m (US$737m) loss of sales for the 16 weeks to 2 January. If stores remain closed into February, the retailer warns of a potential loss of sales amounting to GBP1.05bn. Despite this, Primark is continuing with its store opening programme. Analysts offer mixed thoughts on the trading update.

Gemma Boothroyd, associate retail analyst at GlobalData, a leading data and analytics company, comments: 
"With 76% of Primark's global retail fleet currently shuttered in response to Covid-19 lockdowns, and no transactional website to capture consumer demand, sales during the 16 weeks to 2 January 2021 plummeted — with stark losses estimated at GBP540m. The retailer's stubborn refusal to go digital alongside its heavy reliance on city-centre locations has resulted in a momentous blow, as weakened footfall from declining tourism and commuting made for significantly less shoppers on the high street. Retail park performance managed to slightly cushion the blow, with higher sales versus the same period last year when no store closures were in effect, reflecting that Primark still exudes a broad appeal, as long as stores are open and in the right locations. 

"By extending opening hours for several UK stores during the lead up to Christmas, Primark leveraged ballooning consumer demand built during regional lockdowns in October and November for its value loungewear and nightwear. The retailer sold out of all Christmas and gifting lines, with its casual, comfortable staples performing exceptionally well. Primark's finger on the pulse to offer an appealing product mix, coupled with its decision to carry over GBP200m of transitional stock to the following year also allowed the retailer to discount less, which mitigated the impact of its lower sales volumes. But with a dark period of no UK sales ahead, Primark is wise to focus on geographical expansion, as it plans to open 15 stores spanning eight countries in FY2020/21, including its first store in the Czech Republic.

"With a third lockdown currently in effect across England, Primark fans have taken to Twitter, asking the retailer to consider an online offering. Yet Primark is determined to resist, lamenting that it wouldn't be able to maintain its low value prices. Although it would undoubtedly be a momentous undertaking to manage the logistics and warehouse space needed for its expansive inventory, other value brands such as Matalan and George have been successful in maintaining their low prices while running digital operations, proving it can be done. The growing preference for online shopping is not merely a pandemic-induced phenomenon, and with losses caused by temporary store closures threatening to reach GBP1.05bn for H1, there's no time to waste for Primark. While it has maintained a loyal customer base during rampant store closures, if the retailer doesn't digitise its offer soon, it will continue to lose out to online competitors."

Shore Capital analyst Darren Shirley and Clive Black:
"ABF has issued a trading update for the 16 weeks to 2 January. Our key takeaway is that outside of Covid impacted retail the business is in rude health, with all food related activities trading ahead y-o-y and above start of year expectations. However, retail is under pressure with 76% of selling space closed. Whilst retail remains constrained in the short term, we continue to see still immature Primark as a medium/long term winner and despite a requirement to lower short term forecasts to reflect what is likely to be another extended lockdown period, we reiterate our positive ABF recommendation.

"Looking further forward Primark has announced it continues to sign leases for new stores including Jamaica Avenue in Queens (New York), six in Italy, three in France, Katowice in Poland and Brno in Czech. Primark's medium-term pipeline looks very healthy in our view, boding well for future growth."

Bernstein Research analysts Aneesha Sherman and Aleksey Chuhay:
"Group revenue declined -13% in constant currencies, driven by -30% Primark sales YoY, as store closures in the peak shopping period took their toll. Adjusted for closures, the sales decline would have been -14%, driven by trading restrictions on open stores and weak footfall at destination city centre locations. Absent these destination locations, the number would have been -10%. The closures and restrictions cost the company GBP540m in lost sales.

"Unsurprisingly, guidance suggests a decline in sales and profits for FY21. With 76% of Primark space still closed, management expect GBP1.05 billion of lost sales for H1 (through February end). By slashing 25% of operating costs, Primark incredibly expects to break even for the Half and is continuing to invest in new store growth in Western and Eastern Europe and the US."

Richard Lim, CEO, Retail Economics said: 
"The inability to switch to online during periods of lockdown is laid bare by these figures. As the lights went out across their store estate, sales were effectively switched off too while the competition pivoted to online platforms. Even during periods where stores were able to trade, conditions remained challenging as consumers adjusted to working from home and commuted less, while a significant drop of in tourism saw footfall hit hardest in city centre locations. 

"Whether the retailer will find a way to make the economics of online retailing work remains to be seen. The business model is built on providing low prices to consumers in-store. But the impact of Covid-19 has re-wired the customer journey and shoppers' attention and share of their spend are increasingly being fought online. But currently, Primark is not taking part in that battle and the longer these disruptions continue, the larger the price they will have to pay."