4 min read
This story originally appeared on ValueWalk
“Primark has been lost in the retail jungle during the pandemic, left stranded by repeated Covid closures. Without an online crutch to lean on, it’s been a harsh environment during lockdowns with a £1.1 billion hit to revenues. Even when stores were open, social distancing meant like-for-like sales were 15% lower.
Primark Is Back In The Game
As Primark has struggled, ABF’s food business has flourished, with a 30% surge in operating profits, with demand for ingredients being boosted by fresh rounds of lockdown baking. Even so, ABF has still seen adjusted operating profit for the six months plunge £369 million, down by 46% compared to the same period a year ago.
But as social distancing restrictions have eased, and non-essential shops have opened their doors again, Primark is back in the game, with stores in England and Wales enjoying record sales in the first week from 12th April.
Human pythons are once again snaking around its huge stores, as loyal customers queue up to get their hands on styles drip-fed to them on social media over recent weeks.
It’s a repeat of the release of pent-up demand witnessed following the easing of restrictions during lockdowns 1 and 2 and why Primark has been so bullish despite the hole in its revenues caused by the closures. Demand for ‘stay at home’ styles like loungewear and nightwear was particularly strong. Ensuring the latest fashions greet shoppers following the latest lockdown has come at a cost though. The inventory charge relating to clearing autumn winter ranges to make way for new styles, totalled £21 million. However with fewer red markdown stickers needed compared to the same period last year, Primark’s purchasing talent and inventory management has to be admired.
Powerful Social Media Presence
Primark’s powerful social media presence has been key to its success in drawing shoppers back in, with 8.7 million followers on Instagram alone. For now it seems, this leopard won’t be changing its spots when it comes to its online strategy, with no plans to open a digital store. Instead it sees international expansion as key to its growth prospects, with success in new markets like Florida and Poland. An additional nine stores are opening in the second half and going forward the group sees huge potential in the US market in particular.
However, social distancing requirements in stores and the continued closure of shops in some markets are still likely to be a drag on sales. The continued suspension of international travel and office working is likely to hit revenues at large city centre stores, reliant on spending by tourists and lunch time splurges by workers. By contrast, like-for-like sales at retail parks were higher than a year ago and that trend is likely to continue.
The group assumes that although profits will be lower this year, it expects Primark will return to cash generation, so it’s paying back furlough scheme money accrued during the first six months. It also expects a tailing off of its strong performance in its grocery, sugar agriculture and ingredients business.
But after suspending the dividend last year as Covid took hold around the world, the dividend is back, demonstrating the group’s overall optimism. The Board has declared an interim dividend of 6.2 pence per share totalling £49m.”
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