Discount retailer Primark says transaction better than expected
Associated British Foods, owner of Primark, said the discount fashion chain’s transactions exceeded expectations, but warned that the new Covid restrictions and supply chain issues would cause disruptions.
Business hours in the Netherlands have been restricted, and the retailer’s five stores in Austria have been closed. Vaccine passports are required to enter Germany’s stores.
ABF Chief Financial Officer John Bason (John Bason) said on Friday that the United Kingdom’s re-introduction of work-from-home proposals may also inhibit the gradual recovery of traffic in major downtown stores, but he doubts whether this will reduce overall demand.
“Office traffic will decrease, but it may only appear in other places such as retail parks. People are still shopping, it’s just a question of where to go… Many shoppers have been stabbed and they are now more familiar with the environment.”
Consulting firm Springboard predicts that the plan B measures announced by the government on Wednesday will cause the number of shoppers in central London to fall back to half of pre-pandemic levels. In other major cities, it is expected to decrease by 30% compared to 2019, but shopping volume in retail parks is expected to increase.
Primark said that same-store sales in the first quarter of the new fiscal year improved compared to the last quarter of last year, when sales were down 17% from pre-pandemic levels. The company’s fiscal year begins on September 19.
The company did not disclose the numbers in the transaction update, but analysts believe this is similar to the “exit rate” at the end of the fourth quarter, when sales were 10% lower than before the pandemic.
Primark also stated that it expects sales from December to April to be “significantly ahead” last year, when most of its stores in Europe had to be closed due to an increase in Covid-19 cases.
It predicts that operating margins will also increase as cost savings, favorable exchange rate changes, and lower levels of store disruptions and price cuts offset the impact of rising raw materials and shipping costs.
Olivia Townsend, a retail analyst at UBS, said that since Primark is not sold online, “in a market where restrictions are tightened, there is clearly a certain degree of uncertainty in Primark transactions” . She estimates that a one-month lockdown in Europe will reduce annual sales by 4% and operating profit by 12%.
Regarding supply chain disruptions, Primark said it is prioritizing products with the greatest demand, such as Christmas gifts. “People are more prepared to shop in advance,” Bason said. “The price reduction is lower and the freshness is higher.”
He added that supply chain issues are not limited to the UK. “If anything, it is more serious in the United States.” However, Primark did not raise prices to offset the impact. “We neither need nor want to increase our pricing,” Bason said.
ABF stated that transactions in the sugar, raw materials and grocery sectors were in line with expectations. Increases in prices, cost savings and other measures can help alleviate transportation disruptions and cost inflation.
Basson pointed out that the increase in the cost of natural gas — which is used to convert sugar beets into refined sugar — was partially offset by the increase in the price of bioethanol, a by-product of the process.
The group’s shares are majority-owned by the Anglo-Irish Weston family and have little change in early trading in London at £19.48.