Primark defies wider retail gloom with strong Christmas
Low prices continue to draw consumers as chain presses on with overseas expansion
UK fast-fashion retailer Primark was buoyed by strong trading over the holiday season, defying the general gloom in the sector to post record sales. Primark’s owner Associated British Foods reported on Thursday that UK sales at the retailer had “exceeded our expectations” over the Christmas period, bucking the trend of disappointing results reported by many competitors. Its share price rose 6 per cent in morning trading.
“I think Christmas and the run-up to Christmas was under testing conditions for retailers. But these numbers show Primark was a winner,” John Bason, finance director at ABF, told the Financial Times. “Sales over the Christmas period were at a record level.”
British retailers have this year reported their worst Christmas trading period since 2008, with heavy price cutting failing to draw the crowds.
Mr Bason said Primark’s performance was primarily down to investment in its stores, as well as its low prices. “If you look at some of the high street stores, there is little investment by a number of retailers. That’s not the case for Primark,” he said.
UK sales at Primark rose 1 per cent over the last four months of 2018, with increases in September, October and December offset by a challenging November, as Black Friday and Cyber Monday drew customer spending elsewhere.
Overall revenue at Primark was up 4 per cent during the period as the chain continued to expand in Europe and the US. It increased its retail selling space by 0.3m square feet between September and January to 364 stores and 15.1m sq ft of selling space compared with 14.2m sq ft a year previously.
ABF said the retailer would open a further 0.9m sq ft of selling space during the current financial year. Robert Waldschmidt, an analyst at Liberum, said Primark was “well positioned to take market share and drive doubledigit sales growth” on the back of its continued expansion.
Primark accounts for roughly 60 per cent of operating profit at ABF, whose businesses span retail, groceries and sugar. Overall group revenue was up 1 per cent during the period as sales from continuing operations at its sugar business fell 14 per cent, driven by lower EU sugar prices for contracts negotiated at the end of the last financial year. Prices have since increased, but the impact of this will not be felt until the next financial year.
The group does not expect to take a major hit from the UK’S imminent exit from the EU, Mr Bason said, noting that the company does not rely heavily on intra-eu trade.
“For the Primark business we sell clothes from south-east Asia or wherever and it goes straight into the UK and doesn’t touch the EU27. Or it goes straight into the EU27 and doesn’t touch the UK,” he said. “In terms of a massive disruption I think ABF is not in that category.”