Profits soar at Primark despite challenging trading overseas, says GlobalData

Following today’s release of Primark H1 figures for FY 2018/19, Chloe Collins, senior retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘Despite a tough retail environment, Primark’s H1 results showcase its resilience – though declining like-for-like sales remain a concern. The 4.4% revenue increase to £3,630m has been reliant on new store openings and extensions, with selling space rising by 0.3 million sq ft to 15.1 million sq ft. Despite the cost of these physical developments, operating profit rose to £426m, with margin reaching 11.7%, versus 9.8% in H1 FY2017/18, as the retailer benefitted from purchasing at a weaker US dollar rate, and buying teams enforced tighter controls on stock management and markdowns.

“Careful but continued international expansion will help Primark in H2, with the retailer entering Slovenia – its first store in Central Europe. The value retailer has already announced plans to expand into Poland and the Czech Republic, and it must invest in understanding the shopping habits and preferences of Central European consumers to ensure the move is a success. German trading has proved challenging in H1, leading to a like-for-like sales decline of 3.2% in the Eurozone. Reducing underperforming space is the solution, with Primark needing to be mindful of overexpansion as it extends its reach globally.

“While further expansion aided its domestic performance, notable is the UK’s like-for-like sales growth of 0.6%, which emphasises that Primark’s focus on instore experience is paying off.  This is evident in its new Birmingham store, the largest fashion store in the world, which opened in April and highlights the retailer’s efforts to innovate and further change the perception of value retailers. With five floors and over 160,000 sq ft, the huge space provides a fun and experiential day out for shoppers, with a beauty bar and two hairdressers on site, a Disney café and a whole area dedicated to Harry Potter. Adding these instore elements to more of its estate, would help drive footfall, boost basket sizes and secure loyalty. The anticipated closures of Debenhams and Arcadia stores also provide opportunity to upgrade to more prime sites.

“Primark remains the destination for affordable yet fashion-forward purchases, with its UK clothing market share for 2019 forecast at 6.9%, just behind M&S – though it has plenty of potential to leapfrog the market leader. For a retailer which solely relies on bricks-and-mortar this is clearly impressive, however online pureplays Boohoo and PrettyLittleThing continue to bite and Primark will remain under attack, making further product and price investments imperative to maintain appeal.”