Primark, the well-known retailer that offers affordable fashion, has reported that its trading in the fourth quarter has exceeded expectations, indicating a strong recovery for the company. Following the reopening of all Primark stores between May and July, the company has achieved its highest-ever value and volume shares for this time of year in the UK market. It is important to note, however, that Primark does not have an online sales platform, which resulted in significant losses during the lockdown period.

Despite the challenges faced during the pandemic, Primark is projected to achieve cumulative sales of £2 billion from the reopening to the year-end, with its adjusted operating profit expected to be at the high end of the £300 million-£350 million range. The company has also observed a significant increase in the average basket size initially, reflecting pent-up demand. Although this trend has slightly decreased in recent weeks, it remains higher than the previous year. Furthermore, Primark has successfully avoided excessive markdowns.

While Primark’s overall sales performance has been reassuring, individual stores have experienced varying levels of success. The company noted that stores located in retail parks have seen higher sales compared to the previous year, while shopping center and regional high street stores have remained relatively stable. However, large destination city center stores, which heavily rely on tourism and commuters, have experienced a significant decline in footfall. These stores, which accounted for 13% of total sales prior to the Covid-19 pandemic, now only contribute 8% of sales following their reopening.

The impact on city center stores is particularly evident in the UK market. Sales since reopening are expected to be 12% lower on a like-for-like basis, but excluding the four large UK destination city center stores, the decline is reduced to only 5%. Similarly, in Europe, like-for-like sales are expected to be 17% lower, largely due to increased public health restrictions in countries such as Spain and Portugal. However, excluding the 11 destination city center stores, sales decline is reduced to 13%. In the US, like-for-like sales are 9% lower overall, but excluding the Boston store, they are actually 2% ahead.

Despite these challenges, Primark has successfully managed its exceptional charge of £284 million against inventory by selling the stock in-store and clearing a significant portion of it. This has resulted in a lower book value of the SS20 inventory for the upcoming year and reduced levels of inventory at the year-end. The company’s net cash balance has also improved as a result of the cash generated from these sales.

Regarding store openings, Primark has faced some delays due to the pandemic. However, it has recently opened three new stores in Paris and Warsaw, and the initial trading has been very strong, particularly in Warsaw. Moreover, a new store in Strasbourg, France, is set to open soon.

Primark’s recovery is undoubtedly a positive sign for the company, but it continues to face challenges due to the pandemic and the decline in footfall in city centers. Nonetheless, the company remains optimistic about its future prospects and is actively adapting to the evolving retail landscape.

Useful links:
1. Primark Q4 Trading Update
2. Primark Q4 Trading Update Analysis