Value fashion retailer Primark has booked a 25% jump in first-half operating profit thanks to the addition of new selling space and improved margins, which were driven not only by favourable exchange rates but also by better buying.
For the 24 week period ended 2 March, operating profit climbed to GBP426m (US$551.7m) from GBP341m a year earlier. Operating margin in the first half was 11.7%, well ahead of the same period last year when margin was 9.8%. The effect of a weaker US dollar on purchases contracted for the first half benefited input costs, while better buying, tight stock management and reduced markdowns also drove the margin improvement.
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Meanwhile, sales were 4.4% ahead of last year, thanks to increased retail selling space partially offset by a 1.5% decline in like-for-like sales.
Owner Associated British Foods (ABF) said Primark’s UK market continued to perform well, with sales 2.3% ahead of last year. Like-for-like sales in the region grew by 0.6% and the retailer’s share of the total clothing, footwear and accessories market increased “substantially.” The effect of low footfall in November was offset by good trading in all other months of the first half, the company said, with strong growth in the last two weeks of the period compared to a spell of very cold weather last year.
Sales in the Eurozone were 5.3% ahead of last year at constant currency. Like-for-like sales fell by 3.2% driven by the decline in the German market and also footfall in November across all markets. Particularly strong sales growth was seen in Spain, France, Italy and Belgium. In Germany, ABF said it has strengthened the management team to address the trading which “continues to be difficult,” and preparations are underway to reduce selling space at a small number of German stores.
Meanwhile, business in the US continued to perform strongly, driven by “excellent trading” at the recently opened Brooklyn store combined with like-for-like sales growth.
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By GlobalDataLooking ahead to the second half, Primark’s buying, merchandising, design, sourcing and quality functions, currently located in Reading and Dublin, will be consolidated in Dublin. ABF said the move will further enable one global product range for Primark customers, better efficiencies as well as supporting its expansion into international markets.
Retail selling space increased by 0.3m sq ft since the financial year-end with 364 stores trading from 15.1m sq ft as per 2 March, compared to 14.3m sq ft a year ago. ABF expects to add 950,000 square feet of new selling space in this financial year, comprising stores in new locations and additional space from relocations.
Richard Lim, chief executive of Retail Economics, says Primark’s results demonstrate the power of offering a unique proposition, creating meaningful in-store experiences, and standing for something in a crowded apparel market.
“At its heart, they operate with slick and efficient supply chains, offer exceptional value and continually replenish with fresh and exciting new products which drive their loyal customers back into stores,” he says. “The softer consumer environment has also been supportive with savvy consumers looking to make their budgets stretch that little bit further.”
Chloe Collins, senior retail analyst at GlobalData, concurs – adding despite a tough retail environment, Primark’s first-half results showcase its resilience, although declining like-for-like sales “remain a concern.”
