The Primark fast fashion business has booked a jump in full-year profits and sales for the year, driven by expanded selling space, the weakening of the US dollar exchange rate on purchases, and better buying.
The retail arm of Associated British Foods (ABF) – which comprises the Primark and Penneys chains – saw a 15% rise in adjusted operating profit to GBP843m (US$1.1bn) for the 12 months to 15 September. The group opened 15 net new Primark stores during the year, which is an increase in trading space of 1m sq ft.
Sales grew 6% to GBP7.47bn, although this was offset by a like-for-like sales decline of 2.1% due to “unseasonable weather,” especially in the Eurozone. Sales in the Eurozone were down 4.7% against last year with “especially strong growth” in France Belgium and Italy but weakness in the German market.
The UK retail arm performed “particularly well” with sales 5.3% higher year-on-year and its share of the total clothing market increasing “significantly,” the company said.
Successful sell-through of its summer ranges, along with lower-than-expected markdowns in the second half, meant full-year margin rose from 10.4% to 11.3%.
ABF also says it is “very pleased” with Primark’s US performance in the second half of the year. It opened its ninth store in Brooklyn in July and has signed agreements for two further stores in New Jersey and Florida – set to open in 2019 and 2020 respectively. It is working on adding further Primark stores in the medium term in the eastern region of the US.
Kate Ormrod, senior retail analyst at GlobalData, says that “with UK sales rising 5.3% in FY2017/18, and domestic l-f-ls at 1.2%, Primark’s 2018 clothing market share is forecast to hit 6.8%, overtaking Next by 0.1 percentage points to become runner up behind M&S.”
However, she suggests its international arm is the “weak link” in its business. “With unpredictable weather dictating shopper purchasing decisions, greater flexibility in its supply chain will help protect sales.”
Looking ahead to next year, the retailer says: “Forward exchange contracts have been secured against all merchandise in the first half, and the weaker US dollar exchange rate for these contracts will deliver a higher first half margin compared to the first half of this year. Assuming that purchases for the spring/summer range are secured at current exchange rates, we would expect a lower second half margin.
“The full year operating margin in Primark at this stage is expected to be broadly in line with this year. However, the exchange rate applicable to purchases in the second half will be sensitive to sterling exchange rate volatility, which is likely to arise given a period of intense Brexit negotiations.”