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Primark denies short-term impact of coronavirus, foresees 4.2 percent rise in H1 sales

By Prachi Singh

24 Feb 2020

Business

For the half year, Primark, part of Associated British Foods Plc, expects sales to be 4.2 percent at constant currency and 2.5 percent at actual exchange rates, driven by increased retail selling space and level like-for-like sales. The company said in a statement that with the expected decline in margin, operating profit is expected to be marginally down on last year at constant currency and on a lease-adjusted basis, while on a reported basis, operating profit is expected to be ahead of last year.

Primark added that the group expects strong growth in adjusted operating profit in the second half, driven by profit growth for Primark and a second half weighting of the AB Sugar profit recovery. Following the coronavirus outbreak in China, from where Primark sources a broad assortment of its products, the company said since it typically builds inventories in advance of Chinese New Year, Primark is well stocked with cover for several months and does not expect any short-term impact. However, the company added that if delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year will increase. Primark is assessing mitigating strategies, including a step up in production from existing suppliers in other regions.

Primark sales in UK expected to be 3 percent ahead in H1

In the UK, Primark achieved further increase in its share of the total clothing, footwear and accessories market. It expects sales to be 3 percent ahead of last year, driven by a strong contribution from new selling space partially offset by a 1.3 percent decline in like-for-like sales. The company said, trading was particularly good over November and December but weakened in January and February against very strong comparatives in the prior year.

Sales in the Eurozone are expected to be 5.3 percent ahead of last year at constant currency with particularly strong sales growth in France, Belgium and Italy. Like-for-like sales for the Eurozone were 0.5 percent ahead, continuing the much-improved performance reported in the January trading statement driven by excellent like-for-like sales in France and Italy and, at this early stage, a notable improvement in Germany which was delivered through a series of operational changes made by the new management team.

Primark further said that the business in the US continued to perform strongly, delivering like-for-like sales growth, with particularly strong trading at the store in Brooklyn. Together with the contribution from the planned store openings at American Dream, New Jersey and Sawgrass Mills, Florida, the company expects a much-improved operating result for the year.

Margin was lower in the first half than in the same period last year as purchases this year contracted at a much stronger US dollar exchange rate than for purchases last year, but the effect was substantially mitigated by both reduced markdowns and reductions in the costs of goods, primarily lower materials prices. The company expects second half margin to be in line with the same period last year, and so still expect margin for the full year to be only a small reduction on that achieved last year.

Retail expansion continues at Primark

Primark’s retail selling space increased by 0.2 million sq. ft. since the financial yearend and, at February 29, 2020, 375 stores will be trading from 15.8 million sq. ft. compared to 15.1 million sq. ft. a year ago. Three new stores were opened in the period: Seville Lagoh in Spain; Kiel in Germany; and Milan Fiordaliso in Italy. In addition, it relocated to larger premises in the Norte shopping centre in Porto, Portugal and the Norwich store in the UK was extended. Selling space was reduced in two stores in Germany and a small store in Rathfarnham, Ireland was closed.

The company expects to open 0.9 million sq. ft. of new selling space in this financial year. New stores will open in: Trafford Centre, Manchester in the UK; American Dream in New Jersey, US; Lens, Strasbourg, Paris Plaisir and Paris Belle Epine in France; Maximo in Rome, Italy; Mons in Belgium; Barcelona Plaza de Cataluña in Spain; Gropius Passagen in Berlin, Germany; and Warsaw, Poland. In Eastern Europe, following the forthcoming opening in Warsaw, Primark has signed leases for further openings: Poznan, Poland; Bratislava, Slovakia; and Prague and Brno, Czech Republic.

Picture:Primark via FashionUnited