Sales over the Christmas trading period exceeded expectations

Sales over the Christmas trading period exceeded expectations

Increased retail selling space and better than expected sales over the Christmas trading period helped drive a 4% sales rise at Primark in the first quarter, with the value fashion retailer significantly increasing its share of the total UK clothing market in the period.

In a trading update for the 16 weeks to 5 January, parent company Associated British Foods Plc (ABF) said sales at the retail chain were 4% ahead of last year, at both constant currency and actual exchange rates, and with a higher operating profit margin, profit was well ahead. Sales growth was driven by increased retail selling space partially offset by a modest decline in like-for-like sales.

Domestic sales were 1% ahead of last year for the period, in a market which declined year-on-year. Like-for-like sales in September and October were ahead but reduced footfall affected sales in November. Sales over the Christmas trading period exceeded expectations.

Meanwhile, sales in the Eurozone were 5% ahead of last year at constant currency, with sales growth particularly strong in France, Belgium and Italy. Performance strengthened in the retailer's second largest market, Spain, but soft trading continued in a difficult German market.

In addition, ABF said it is pleased with the strong US performance in the period, with sales "well ahead" and benefitting from very strong trading at the Brooklyn store, which opened in July last year.

As expected, operating profit margin in the period increased, with purchases having been contracted at a weaker US dollar exchange rate than last year, and through better buying and tight stock management. Operating profit for the full year is in line with expectations.

The retailer's selling space increased by 0.3m sq ft since the financial year-end and, at 5 January 2019, 364 stores were trading from 15.1m sq ft which compared to 14.2m sq ft a year ago. Primark is expecting to open 0.9m sq ft in this financial year.

Kate Ormrod, lead retail analyst at GlobalData, notes Primark's "more muted" first-quarter performance, with low single-digit growth driven by an increase in selling space as like-for-likes declined, is evidence of how tough the fashion sector was in 2018.

"Indeed Primark has one of the most compelling propositions on the UK high street. However being a non-discounting store-only retailer poses a challenge in the run-up to Christmas as spend continues to shift online and the market becomes even more promotional allowing shoppers to more easily trade up," she says.

ABF had already announced that November trading in the UK had been "challenging", with the retailer today (17 January) stating that reduced footfall dampened sales; however, its appeal won shoppers over with sales over the Christmas period outperforming expectations. Ormrod adds.

Meanwhile, targeting competitive segments of the market, specifically the 16-24s, will only prove more difficult for Primark due to the fierce opposition, namely from online pureplays given their ability to better engage shoppers online.

"Indeed the likes of Missguided and Boohoo are arguably more fashion-focused than Primark, though lack more widespread appeal," Ormrod explains. "There remains potential for Primark to target shoppers aged 40+, via more inclusive and less youth-focused marketing campaigns, with opportunity to steal more customers from midmarket players M&S and Next.''