The clothing retailer has “capitalised on the continued trend for ‘comfort living’” with the debut of the cheekily named sweatshirt-meets-blanket-meets-hoodie, ABF CEO George Weston said. The fashion newbie, billed as “your new loungewear must-have,” garnered a strong response from customers across markets, he added.
In a Nutshell: Pandemic store closures drove ABF’s loss to 2 billion pounds ($2.71 billion) and contributed to a 12 percent decline in comparable sales versus two years ago. Traffic to European stores were most affected by measuring restricting activity due to public health concerns. In September Primark expanded its Home department at the West Midlands Merry Hill store and plans to roll out the extended range to 40 stores in the coming months.
In contrast, Primark’s U.S. business drove a “good profit margin,” Weston said, and comparable sales climbed 6 percent over the two-year-ago period, excluding the downtown Boston store. Stores at Sawgrass Mills Florida, American Dream New Jersey, State Street Chicago and Fashion District Philadelphia opened during the year. “The performance of both our existing and newly opened stores, combined with the profitability, gives us confidence to increase the pace of expansion in this important market,” Weston said.
Beyond Primark’s strong snuddie arrival, “sales of our autumn/winter ranges have started well and sales densities continue to improve,” Weston said, also giving a shout-out to the Great Outdoors collection. The line’s waterproof jackets, boots and breathable trousers for women, men and kids includes Primark Cares items made with recycled and sustainably sourced materials.
While the company ended the fiscal year with 398 doors, ABF is planning to add at least 132 for 530 total over the next five years. Eleven have already been confirmed for next year, with four each in Italy and Spain and one apiece in the U.S., Czech Republic and Ireland. Growth over the five year-period will focus on the major markets in the U.S., France, Italy and Iberia. Leases have been signed for locations in the Greater New York area, Tyson’s Corner in the Washington, D.C. metro area, Bratislava, Slovakia—a first for Primark—and four sites in Poland. The company “will continue to explore opportunities in new markets,” Weston said.
Despite Primark’s reliance on a “highly efficient store retail model” and vulnerability to the pandemic, ABF is confidence is the chain’s future, Weston said.
“We believe that Primark’s proposition of providing customers with a wide selection of products at great value prices is highly sustainable. The low-cost retailing model is driven by structural advantages: purchasing quantities on a large scale leads to efficient production, a broad supplier base with long-term relationships, very low distribution costs throughout the supply chain from supplier to store, and high store sales densities,” Weston said. “These characteristics provide Primark with a differentiated business model with real competitive advantage.”
Weston cited “strong supporting evidence” of the in-store shopping experience’s “enduring appeal.” “Primark is uniquely placed on the high street to take advantage of this as it continually evolves its store design and in-store services and expands into new product ranges attracting existing and new customers to the business,” he said.
Primark has significant opportunities to reduce operating costs by trimming lease expenses and investing in technology in warehouses and stores. “Additionally, Primark is investing to upgrade its digital presence and online visibility and is on track to launch a redesigned customer facing website in the UK in the first quarter of 2022,” Weston said. Customers on the website will be able to research 70 percent of items, up from 20 percent, and check their availability before they visit store to buy.
Primark’s sustainability agenda will yield affordable sustainable fashion options like the chain’s newly launched circular jeans. “We believe this strategy can be implemented without any significant movements in the Primark profit margin over the longer term,” Weston said.
Net Sales: Sales at Primark fell 5 percent to 5.593 billion pounds ($7.57 billion) from 5.895 billion pounds ($7.98 billion) as stores were open just two-thirds of the time due to Covid-19 closures.
ABF reported group revenue of 13.884 billion pounds ($18.80 billion) for the year ended Sept. 18, in line with last year.
The company said comparable sales at Primark declined12 percent versus pre-pandemic levels. Weston expects the metric to recover as tourism returns in the wake of rolling lockdowns and closures.
“The periods of closure were longer this year compared to the last financial year and sales declined by 5 percent at constant currency as a result,” ABF said.
Earnings: Primark’s adjusted operating profit before the repayment of job retention scheme funds rose 15 percent to 415 million pounds ($561.8 million) from 362 million pounds ($490.1 million) a year ago. The Primark operation took an inventory charge of 21 million pounds ($28.4 million) during the second half to clear out unsalable seasonal store inventory.
For ABF, the statutory operating profit for the year was 808 million pounds ($1.09 billion), essentially flat from 810 million pounds ($1.10 billion) last year. Adjusted operating profit was 1.011 billion pounds ($1.37 billion) and was in line with last year.
“Primark is not immune to the challenges of supply chain, raw material cost and labour rate inflation. However, we currently expect the impact of these to be broadly mitigated by the transaction currency gain arising from the weaker US dollar, improved store labour efficiency and lower operating costs,” Michael McLintock, ABF’s chairman, said.
Primark is seeing “significant cost increases in energy, logistics and commodities in addition to the impact of port congestion and road freight limitations” and is working on cost-saving measures, McLintock said.
CEO’s Take: “Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much-improved margin and profit next year,” Weston said.