Primark has revealed its first fall in half-year underlying sales in 12 years amid a tough UK market and a rash of store openings in Germany and the Netherlands.
Unseasonably warm weather in the UK and across northern Europe leading up to Christmas hit sales at the once rapidly growing chain’s established stores – although the company said the fall was less than 1%. Opening of stores in Germany and the Netherlands took sales away from group’s older outlets in those countries. Sales in France and Spain were strong and the company also opened its first outlet in Italy.
George Weston, chief executive of Primark’s parent company, Associated British Foods, said clothing sales in the UK continued to be difficult in recent weeks but it was unclear whether shoppers had been put off by a chilly spring, or there was a wider issue for clothing retailers.
“We need some warm weather and then we will know if there is a real problem on the high street,” he said. “Easter being early doesn’t help as it is often a trigger for people switching to summer buying. People are spending their money on other things than clothing at the moment but that might be because they don’t want spring/summer yet. It could be that when spring and summer arrive they will switch back.”
His comments come after more than £3bn was wiped off the stock market value of Next, now the country’s biggest clothing retailer, last month when its chief executive, Simon Wolfson, said that trading conditions were the toughest since the financial crisis.
Weston said it was too early to tell if Wolfson was right but that Primark had been able to increase profits even in the face of poor sales in the UK, its biggest market. “That’s a consequence of good stock management and then you try to provide the best fashion at the best price. If there is greater market change going on you can’t do much about it but have to be the best fashion business going,” he said.
Jamie Merriman, an analyst at Bernstein Research, said that, despite the fall in underlying sales, Primark had managed to keep a tighter rein on profit margins than expected. The company offset the devaluation of the euro against the dollar, which Primark uses to buy most of its garments overseas, by managing stocks tightly and buying cleverly so that it was able to clear products without having to discount as much as the previous year, he explained.
Despite the sales fall at Primark, Associated British Foods revealed a better than expected 4% rise in underlying pretax profit to £466m in the six months to 27 February. This was despite sales falling by 2% to £6.1bn.
Profits were helped by ABF’s sugar business, which moved back into the black with a profit of £6m, compared with a loss of £3m a year before, as revenue rose 3% to £843m.
That recovery, as well as a strong performance by its ingredients business, which sells bakery and other foodstuffs to manufacturers and food outlets, and at its grocery division, which owns brands including Twinings and Kingsmill, helped offset a decline in profits at Primark.
The retail business’s operating profit, which represents more than half of ABF’s profits, fell 1% to £313m as it was hit by exchange rate headwinds as well as investment in opening stores in the US. Total sales rose 5% to £2.7bn.
ABF said that early trading at its two Primark outlets in the US – in Boston and Philadelphia – had been “encouraging with very positive feedback”. It added that it expected to have nine stores in the country by the end of 2016 including one in New Jersey.
The company reiterated its expectations of a “marginal decline” in earnings per share for the financial year, which ends in August.
