Primark sales climbed 3 percent in the third quarter over 2019, though owner Associated British Foods cited labor and operating expenses, rising inflationary costs and the delta variant as issues that could affect the British retail conglomerate’s near-term performance.
Despite the fast-fashion chain’s Q3 sales bump, European covid infections and ensuing social restrictions dinged fourth-quarter results, according to the company, which expects Primark’s Q4 adjusted operating margin to beat its outlook. The company plans to report results for the full 53-week year ending Sept. 18 on Nov. 19.
Lower store labor costs, stemming from fewer workers, better scheduling and reduced brick-and-mortar operating outlay, bolstered margins, Primark’s owner said. It took a 96 million pound ($132.8 million) second-half hit after repaying job retention assistance it received in the U.K., Ireland, Portugal, the Czech Republic and Slovenia.
The last lockdown drove Primark’s inventory up 400 million pounds ($553.4 million) above normal, but reopening stores reduced those levels. It sold last year’s pack-and-hold spring/summer inventory in recent months, while it will release held-over autumn/winter inventory in the upcoming season.
“We are experiencing some delays to the handover of some autumn/winter inventory caused by port and container freight disruptions,” the company said. Year-end inventory is seen totaling 200 million pounds ($276.2 million), with cash on hand rising accordingly, it added.
The company expects lower store labor and operating costs to support the next financial year’s operating margin. Meanwhile, it anticipates a weaker U.S. dollar will “broadly” mitigate supply-chain costs and raw material inflation.
Primark’s second-half sales are expected to reach 3.4 billion pounds ($4.7 billion). “Our forecast for the full year adjusted operating profits, stated before repayment of job retention scheme monies, is now ahead of the profit delivered last year,” the enterprise said, adding that Primark benefited from a “significant reduction is store labour costs.”
Comparable third quarter rose 3 percent ahead of 2019, with strong U.K. and European business where stores had reopened. “Customers came back to our stores with enthusiasm and sales reflected some pent-up demand with very high basket sizes,” Primark’s owner said.
That changed at the start of the fourth quarter, when delta-fueled Covid-19 cases surged. A steeper 24 percent weekly decline decelerated to just 10 percent off in recent weeks. Comparable Q4 sales are seen coming in 17 percent lower versus two years ago, the company said.
The trend toward “comfort living” drove strong fourth-quarter leisurewear sales of items including leggings and bike shorts while women’s seamless matching separates enjoyed strong demand. “We also saw a good response to the launch of new licensed product with the womenswear Disney paisley range proving particularly popular,” the company said.
Autumn and winter merchandise sales have “started well,” and “back-to-school ranges started strongly with demand for our great value essentials such as children’s t-shirts and socks,” the company said.
Primark’s parent said U.K. apparel, footwear and accessories markets across all channels for the 12-week period from May 31 to Aug. 22 “had the same value share of the total market compared to the same period two years ago.”
Sluggish fourth-quarter tourism drove 30 percent comparable sales declines at stores in Spain and Portugal, the latter of which restricted customer capacity. Rules regarding proof of vaccination or negative Covid-19 results drove foot traffic declines in French, Primark’s owner said.
In the U.S., where Covid restrictions pale in comparison to Europe, comparable fourth-quarter sales, excluding the downsized Boston Downtown Crossing store, were 3 percent ahead of the 2019 period.
Though Primark reduced square footage at three German stores last year, sales results remain in line with pre-downsizing levels. The retailer will open a new store in Philadelphia’s Fashion District on Thursday for a year-end total of 398 doors, and 15 fiscal openings worldwide.
Covid-19 restrictions have “held back our progress in developing the pipeline of new stores,” said Primark’s owner, which has had trouble assessing and evaluating sites and negotiating with potential landlords. It expects to add four new stores each in Italy and Spain next year, and one store each in the U.S., the Czech Republic and Ireland. “We expect to see an acceleration in new store openings in future years,” it said.
Primark is redesigning a new digital platform that will showcase a larger proportion of its offerings and in-store availability when it’s completed next year.