Primark sales decline blamed on 'unseasonable' weather but profits rise
The fashion chain's continental sales drag on its full-year figures but there is no sign of an end to expansion despite headwinds.
Tuesday 6 November 2018 13:41, UK
The owner of the discount fashion retailer Primark has reported a hit to annual sales from "unseasonable weather".
The Associated British Foods (ABF) full year results showed Primark like-for-like sales - a measure of business at stores open for more than a year - fell 2.1% in the 12 months to 15 September.
Total revenue at constant currency rose 5% to almost £7.5bn thanks, in part, to new store openings and higher margins.
Adjusted operating profits in the retail division, which has 360 stores across the UK, euro area and in the US, were 13% up at £843m.
But ABF's chief executive said the eurozone suffered particularly from weather that did not suit ranges in its stores - with like-for-like sales down 4.7% - though he was more encouraged by current trading.
George Weston said of the last financial year: "This decline was driven by unseasonable weather during three distinct periods this year, especially in northern Europe, and by soft trading in a weak German market."
The UK "performed particularly well", he added, with market share up and like-for-like sales rising 1.2%.
The company also confirmed it would soon open a temporary Belfast store after its home in the city's Bank Buildings was gutted by fire during the summer.
ABF shares were more than 2% higher in early deals as investors took heart from Primark's model and promises of continuing investment to come and shook off continuing concerns about its sugar operation.
Primark is a rarity on the high street as it does not sell online - bucking the trend of a stampede for digital channels as rising costs for physical store retailers combine this year with weaker consumer sentiment to damage profitability.
There have been many casualties, with House of Fraser the biggest high street name to collapse only to be bought out of administration moments later.
Among those to seek rescue deals - closing stores and cutting rent bills - was New Look, which later also confirmed it was getting out of China to focus on its core UK operation.
Primark's competitor reported half-year results that suggested the new focus on broadening its appeal and growing profitability was showing signs of paying off.
It said that while revenue was down 4% to £657m in the six months to 22 September, cost savings helped adjusted pre-tax profits double to almost £50m.
However, New Look's chief executive said he expected "significant headwinds" including Brexit to continue to exert pressure on demand.
Sofie Willmott, senior retail analyst at GlobalData, said it would take time for the company's turnaround to bear fruit.
"New Look recently announced its plan to exit China by the end of December 2018, closing its remaining 120 stores.
"The switch in strategy will no doubt hit profit margins but New Look is wise to narrow its focus on its domestic market, ridding itself of costly distractions, given the tough competition at home, she said''.