You will be redirected back to your article in seconds
Skip to main content

Primark Sees Strong Reopening Traffic But Europe Headwinds Loom

Primark parent Associated British Foods touted strong foot traffic at store reopenings in England and Wales, but it still expects the Covid-19 pandemic to weigh on second-half results.

In a Nutshell: “Primark sales after store reopenings demonstrate the relevance and appeal of our value-for-money offering. We are excited about welcoming customers back into our stores as the lockdowns ease and are delighted with record sales in England and Wales in the week after reopening on [April 12],” George Weston, president of Associated British Foods (ABF) said.

Weston said that with stores reopening and Primark once again generating cash, ABF’s management has decided to “repay the job retention scheme” funding it received from the government for the current fiscal year.

The decline in revenue for the reported first half was driven by the loss of retail store contribution from Primark due to lockdowns and other operating restrictions, noted Michael McLintock, ABF’s chairman. He also said the company had accessed the job retention schemes offered by the U.K. and European governments to pay workers on the sidelines while stores were temporarily closed. “These schemes have enabled us to preserve all the jobs in Primark’s 65,000 workforce,” the chairman noted.

Looking ahead, McLintock said that the degree of uncertainty is now “substantially lower” than last year because of the large proportion of U.K. adults who have since received Covid-19 vaccinations, as well as from the early success in the reopening of Primark stores in England and Wales.

Related Stories

The picture was different elsewhere in Europe.

“The reopening dates for France, the Republic of Ireland and the remaining stores in Germany are yet to be confirmed. We will increase our retail selling space with an additional nine stores opening in the second half. We continue to expect the profit for Primark to be somewhat lower than last year,” McLintock said.

Net Sales: ABF said group revenue fell 17 percent to 6.31 billion pounds ($8.81 billion) for the first half ended Feb. 27, from 7.65 billion pounds ($10.67 billion).

For Primark, revenue fell in the period by 40 percent to 2.23 billion pounds ($3.11 billion) from 3.71 billion pounds ($5.18 billion), with the decline due to restrictions from the Covid-19 pandemic that resulted in temporary store closures.

“The extent and timing of these restrictions have varied by market, with different approaches taken by each government,” Weston said. “The majority of our stores were closed during November and from December to the end of the period. We estimate the loss of sales while stores were closed to be some 1.1 billion pounds ($1.53 billion) and when stores were open, the restrictions resulted in like-for-like sales of [down] 15 percent compared to last year.”

Even in Eurozone countries where stores were allowed to open, many operated under restrictions on business hours and limitations on traveling distances from home. “In some cases, the range of merchandise we were permitted to sell was limited. Consequently, the like-for-like performance in the first half in the Eurozone was down 20 percent,” Weston said.

Like-for-like sales for stores at retail parks were higher than a year ago, while shopping center and regional high street stores were lower, and large destination city center stores—typically reliant on tourism and commuters—continued to see significant declines in foot traffic.

In the U.S., Weston said the Primark operation is “now profitable.” In addition, ABF is seeing strong business at newly opened stores at Sawgrass Mills in Florida, American Dream in New Jersey, and State Street in Chicago, which opened last month. “Primark is clearly resonating with the U.S. customer and brand awareness continues to build,” Weston noted.

Regarding new store openings that are planned for the balance of the current fiscal year and beyond, Weston said there will be three new Primark stores in Spain during the current fiscal year and a second store in Rome. Seven more stores in Italy are planned by 2022, he noted, adding that the retailer is in the early stages of its expansion in Eastern Europe, with a second store planned for Poland and its first store in the Czech Republic. In addition to the Chicago store opening in the U.S. last month, Weston said the company has signed a lease for a store in Tysons Corner, outside Washington, D.C., joining the leases signed for new stores in Queens and at the Green Acres Mall in Long Island, both in New York.

As for how it did during the holiday season, Weston said all Christmas and gifting lines were sold out, while the performance for “stay at home” product categories was strong, especially in nightwear and loungewear. Markdowns were “substantially lower” than the year-ago period, and about 260 million pounds ($348.9 million) in seasonal stock for autumn-winter that wasn’t delivered to stores will be held over and sold later this year.

On the reopening of stores in England and Wales on April 12, Weston said the company saw record sales in the first week. “Over half of the stores broke their own sales records,” the CEO said. “The performance last week was driven not only by increased basket sizes but more importantly by an improvement in footfall across all our high street, shopping centre and retail park locations to bring footfall for the whole estate back to pre-Covid-19 levels.”

While leisurewear and nightwear and lingerie has been strong, Weston said customer response to the new trends for spring/summer has been very strong, and Primark has seen “excellent demand” for fashion ranges in women’s wear.

“We expect the period after the reopening of stores to be very cash generative as we sell the higher than normal inventory on hand. In line with our normal practice, we have placed substantial orders for merchandise for the coming autumn-winter season,” Weston said.

Looking ahead, Weston cited April 26 as the reopening day for 20 Primark stores in Scotland, but he also added that the store reopening progress in the Eurozone “has been mixed” as some store reopening dates have been delayed and others reopened with limited store hours.

“A pre-booking system which controls the number of customers in the store at any one time, ‘click and meet’, has been introduced in our reopened stores in the Netherlands, Germany and Belgium. This format allows trading to continue albeit at a much-reduced level, where otherwise stores might have been closed,” Weston said.

Based on current published reopening dates, Weston said the sales loss for the second half could be in the range of 700 million pounds ($976.8 million).

Earnings: Profit for the period fell 22 percent to 172 million pounds ($240.0 million), or 20.5 pence ($0.29) a diluted share, from 221 million pounds ($308.4 million), or 27.5 pence ($0.39), in the year-ago period.

Adjusted profit before tax was 319 million pounds ($445.1 million), or 25.1 pence ($0.35) a share, representing a 50 percent decline in adjusted profit before tax in the same year-ago period.

At the end of the first half reporting period, 22 percent of Primark’s selling space was open. ABF expects more store reopenings in some markets over the coming weeks, with business at the end of April to represent about 68 percent of its retail selling space. That percentage increases to 79 percent if stores with restrictions on operations, such as reduced store hours, are included in the tally.

Executive’s Take: “We continue to feel very optimistic about the opportunities for growth in the Primark business. We have a strong pipeline of store openings across a number of growth markets for the brand, with a particular focus on southern Europe and eastern Europe. We see further opportunity to expand our selling space in France, Spain, Portugal and Italy, where the Primark brand resonates strongly with consumers,” Weston said.