Primark Sales Growth Slowed During Holiday Season

Cheap street in Britain

Retailer

Sales growth slowed during the holiday season, dragging down the stock price of the parent company Associated British Foods PLC (ABF.L), the British Union food group (ABF), on Wednesday, 18, after a sharp 4.1% decline.

According to the world clothing and shoe net, Primark achieved 7% fixed exchange rate growth in the first 16 weeks of January 6th (the first quarter of 2018 fiscal year).

The expected 10% is also lower than 12% in 2017.

ABF's chief financial officer, John Bason, said at a conference call after the earnings report that the October anomalous high temperature that caused widespread shocks to European retailers also caused Primark to suffer in northern Europe, especially in the Holland market, with double-digit declines in some countries.

In its earnings report, the group stressed that the European market resumed good performance in the first 5 weeks of Christmas, and that the British market, which accounted for half of its brand income, continued to achieve strong sales growth in the same store, and increased market share and pushed the overall sales in the holiday season to a record.

As the largest clothing retailer in the UK, Primark did not expand its online sales channels, totally relying on 350 (UK's 185) entity stores which are located in high street and shopping malls.

John Bason pointed out that in the first quarter, British sales were hot. Among the 20 major retailers in the country, the market share of Primark increased most rapidly in the past year.

Barclays PLC Barclays estimates that the brand's same store sales in the first quarter of this year are close to 4% growth, showing that Primark, which sells 2 pounds of T-shirts and 5 pounds of jeans, has continued to favor in the case of rising prices and increased demand for living expenses. In the holiday season and Next PLC (NXT.L), Superdry PLC (SDRY.L) extremely dry, Ted Baker Baker (or) and other clothing brands and department stores, it has won the same trade, while Martha, department stores, issued a profit warning and continued to shrink, and the parent company, the company, has asked for a 2% reduction in the cost of logistics and electricity providers.

Richard Hyman, an independent analyst, points out that in the UK, consumers tend to patronize cheap and discounted retailers such as Primark and Poundland and Aldi supermarkets in order to save money for high-end products. This trend is most damaging to mid-range retailers, namely Next PLC, Marks&Spencer Group PLC, Marsha general store, Debenhams, and those who are seeking to reduce rent.

John Bason said that although data showed that British consumers' purse was tightened, the group also noted that British households were carefully calculating expenses, so Primark had never increased their prices. But he thought that this was not the only reason for the strong growth of British business. Product supply and good interaction between social media and digital channels and customers were important factors.

He reiterated that the group had no plans to establish an online sales business for Primark.

The US business continued to make progress in the first quarter, ABF said.

Primark opened 8 stores in the northeast after its entry into the United States in October 2015, but due to its less than expected performance, ABF announced last year that it would reduce the size of three shops.

Craig Johnson, President of Customer Growth Partners, told the Wall Street journal that most of Primark stores are located in shopping malls, and it is difficult to reach high street shops on weekdays. In addition, the brand takes a low price promotion policy, and its gross profit is limited. Its profitability basically depends on the huge store area and high sales density, but if the sale of single store is not up to standard, its mode will not continue.

RBC Capital Markets LLC plus King capital market analyst Richard Chamberlain also believes that in view of the low visibility of Primark and the rejection of e-commerce, it will take longer for the public to accept in the US.

John Bason previously revealed that it is adjusting the size of Primark stores (reducing the area to increase sales density), and once the indicators are in place, it will expand.

He said to analysts today: "people always equate the reduction in scale to the decline in sales and see it as a failure", but the group's 10 store plans in the United States and the fine-tuning strategy in the process have not changed.

Two years ago, the Boston Downtown Crossing flagship store, which launched the first market in the US market, has completed 20% expansion in recent months. Its current area is 92 thousand square feet, and the ninth Shop with an area of 60 thousand square feet will be located in Kings Mall of New York, Broolyn, in the summer of 2018.

Barclays PLC Barclays analyst believes that Primark can expand its local business to the current size of about 340 stores in Europe by developing the less developed fast fashion market in the US.

The bank raised the Associated British Foods PLC (ABF.L) rating to "win the big city" this week.

ABF now expects Primark's medium-term operating margin to be close to the level of the same period of the previous year - 10%. Although the depreciation of the pound against the US dollar has a negative impact on procurement, it can basically be offset by improvement in procurement implementation.

John Bason revealed that the exchange rate floating has changed from "headwind" to "downwind" and profit margins have reached a turning point.

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