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Fast-fashion chain Primark says trading is better than expected

Primark owner Associated British Foods said trading at the discount fashion chain has been ahead of expectations, but warned over disruption from renewed Covid restrictions and supply chain issues.
Opening hours are already restricted in the Netherla…

Primark owner Associated British Foods said trading at the discount fashion chain has been ahead of expectations, but warned over disruption from renewed Covid restrictions and supply chain issues. Opening hours are already restricted in the Netherlands while the retailer's five stores in Austria are closed and vaccine passports are required to enter stores in Germany. John Bason, chief financial officer of ABF, on Friday said renewed work-from-home advice in England was also likely to curtail a gradual recovery in footfall to key city centre stores, but doubted it would reduce demand overall.

"Office traffic will reduce, but it might just pop up in other locations like retail parks instead. People are still shopping, it is just a question of where . . . a lot of shoppers are triple-jabbed, they are much more familiar with the environment now." Springboard, a consultancy, has forecast that the Plan B measures announced by the government on Wednesday will result in shopper numbers in central London falling back to half of pre-pandemic levels.

In other major cities it expects a 30 per cent reduction compared with 2019, but it is forecasting a rise in shopping at retail parks. Primark said same-store sales in the first quarter of its new fiscal year have improved relative to the final quarter of the previous year, when they were down 17 per cent on pre-pandemic levels. The company's financial year begins September 19.

The company did not disclose a figure in the trading update, but analysts have assumed that it is similar to the "exit rate" at the end of the fourth quarter, when sales were running 10 per cent lower than before the pandemic. Primark also said it expected sales from December to April to be "significantly ahead" of last year, when large parts of its store estate in Europe had to be closed because of rising Covid-19 cases. It is forecasting an increase in operating profit margin too, with cost savings, favourable exchange-rate movements and lower levels of disruption and markdown in stores offsetting higher raw material and freight costs.

Olivia Townsend, retail analyst at UBS, said there was "clearly a degree of uncertainty around Primark trading in markets with tightening restrictions" given that it does not sell online. She estimated that a one month lockdown in Europe would reduce full-year sales by 4 per cent and operating profit by 12 per cent. In relation to supply chain disruptions, Primark said it was prioritising products most in demand, such as Christmas gifts. "There was a higher level of preparedness for people getting their shopping in earlier," said Bason. "There is a lower level of markdown and more newness."

He added that the supply chain problems were not confined to the UK. "If anything it is more acute in the US." Primark has not raised prices to offset the impact, though. "We neither need nor want to increase our pricing," Bason said. Trading in the sugar, ingredients and groceries divisions was in line with expectations, said ABF. Price increases, cost savings and other measures are helping to mitigate transport disruption and cost inflation.

Bason pointed out that higher costs for natural gas -- heavily used in the conversion of beet into refined sugar -- were being partially offset by higher prices for bioethanol, a byproduct of the process.

Shares in the group, which is majority-owned by the Anglo-Irish Weston family, were little changed in morning trade in London at GBP19.48.