• Primark has "performed well" in the UK where full-year sales are expected to be 6% ahead of last year.
  • Primark sales are tipped to be 5.5% ahead of last year at constant currency.
Primark full-year sales are expected to be 5.5% ahead of last year

Primark full-year sales are expected to be 5.5% ahead of last year

Primark's full-year sales are expected to rise 5.5% on last year, as a strong profit performance from the value fashion retailer helps parent company Associated British Foods Plc (ABF) maintain its full-year guidance. 

In a pre-close period trading update today (10 September), ABF said Primark sales are tipped to be 5.5% ahead of last year at constant currency, driven by increased selling space, offset by a 2% decline in like-for-like sales. At actual exchange rates, sales are expected to be 6% ahead.

A "very successful" sell-through of summer ranges meant the level of markdowns in the second half was lower than expected, although above the unusually low level in the comparative period last year, with ABF forecasting operating margin for the full year at about 11% compared to 10.4% in the prior year.

The company added operating margin in the first half was 9.8%, down from 10% in the same period last year, due to the adverse effect of the US dollar exchange rate on purchases. As expected, margin in the second half will be well ahead of the first half and last year driven by the benefit of the weakening of the US dollar exchange rate on purchases and by better buying.

Meanwhile, Primark has "performed well" in the UK where full-year sales are expected to be 6% ahead of last year, with ABF adding its share of total clothing market in the country has also increased significantly.

Like-for-like growth for the full year is expected to be 1.5% driven by a strong first-half and a second-half performance in line with an "exceptionally strong" second-half last year.

While Spain, Portugal and the first four stores in Italy delivered very strong sales growth in the year, like-for-like sales for Primark were held back by a decline in northern Europe where the unseasonable weather during three periods this year led to difficult retail conditions. Despite this, sales in northern Europe were well ahead of last year driven by increased selling space. ABF added early trading of the new autumn/winter range has been encouraging.

Retail selling space increased by 0.9m sq ft in the year with 15 net new store openings. This brings the total estate to 360 stores trading from 14.8m sq ft compared to 13.9m sq ft a year ago. Five stores were added in Germany; four in the UK; two in France and one each in Portugal, Belgium, Spain, Netherlands and the US. A small store at Lisnagelvin, Londonderry, in Northern Ireland was closed and selling space in the US stores in Freehold and Danbury was reduced.

In the next financial year, ABF is planning more than 1m sq ft of additional selling space, with more than 0.5m sq ft being added in the first half. Germany, France, Spain and the UK will see the most space added and overall the group will open 14 new stores.

Kate Ormrod, lead retail analyst at GlobalData, notes Primark has muscled its way into the UK clothing market, winning the most share over the past ten years, leapfrogging both Arcadia and Next, and is now closing in on leader M&S.

"Today's pre-close trading update illustrates not just Primark's domestic resilience but its outperformance of the UK clothing market, succeeding where others continue to fail," she says. "Indeed while an uncertain economic environment and weak consumer confidence have played into the value giant's hands, Primark's offer remains compelling, resulting in UK like-for-like sales rising 1.5%, enabling it to steal shoppers from rivals within both the midmarket and value segments."

However, despite solid UK trading, group like-for-like sales have now slipped back into negative territory, equalling those achieved in FY2015/16.

A prevailing trend this year has been like-for-like weakness in northern Europe, with unseasonal weather impacting trade across three quarters – though new space has been a saving grace in driving total sales in this region, Ormrod adds.

"While there are unquestionably greater expansion opportunities outside of the UK, noted in Primark's announcement of its entry into Slovenia in 2019, fine-tuning its proposition remains essential if it is to build on its positive like-for-like performance at home. Enhancements made to the in-store environment must be rolled out across the estate; and though Primark has potential to become a more serious contender in home, it needs a more sophisticated offer to appeal beyond university students and renters.''