Primark, the popular budget fashion retailer, has faced significant challenges during the first half of the financial year due to store closures amid the COVID-19 pandemic. This has resulted in a decline in revenues and profits for its parent company, Associated British Foods. The group experienced a 17% drop in revenue, amounting to £6.313 billion, while adjusted operating profit fell by 46%, reaching £369 million.

CEO George Weston recognized the detrimental impact of store closures on Primark’s financial performance. However, he emphasized that the subsequent sales surge after the reopening of stores demonstrated the continued appeal of Primark’s value-for-money offering. In fact, since non-essential retail stores were allowed to reopen in England and Wales, Primark has achieved record sales in these markets.

Unlike many other fashion retailers, Primark does not have an online operation, which meant that the closure of its physical stores effectively forced the company into hibernation. Despite this setback, Primark remains committed to its business model. Over the past year, the company has experienced over £3 billion worth of lost sales and more than £1 billion of lost profit. The closure of stores has also resulted in significant cash outflows, with £650 million outflow in the first half of this year alone.

During the first half of the financial year, Primark’s revenue reached £2.232 billion, signifying a decrease of 40% compared to the previous year. Adjusted operating profit also experienced a significant decline, plummeting to £43 million, down 90% from the previous year. These results were largely influenced by lockdown measures implemented in the UK and Europe, although all Primark stores were not fully closed at any point, unlike during the initial wave of lockdowns. The company estimates that closures led to £1.1 billion in lost sales during this period, and even when stores were open, like-for-like sales were down by 15%. Nonetheless, the company considers this performance to be strong given the circumstances, including lower consumer spending and stay-at-home advice.

In the UK, like-for-like sales in the first half were down 6%, and excluding four major city center stores, the decline was only 1%. In many eurozone countries, although stores remained open, they faced trading hour restrictions and limitations on the travel distance allowed for shoppers. Additionally, some stores had restrictions on the range of merchandise they could sell. As a result, the eurozone saw a like-for-like performance decline of 20% in the first half.

Despite these challenges, Primark’s US business performed well and became profitable. The absence of store closures and a like-for-like sales drop of just 11% contributed to its success. The company highlighted the strong trading performance of its newly opened stores in Sawgrass Mills Florida, American Dream New Jersey, and State Street Chicago during March.

However, Primark still faces the impact of COVID-19 measures, with Scottish stores remaining closed until next week and mixed progress in the eurozone. Some reopening dates have been delayed, and trading in certain countries such as the Netherlands, Germany, and Belgium has significantly reduced. The company expects a loss of approximately £700 million in sales during the second half of the year due to ongoing closures and restrictions. Nevertheless, the record sales achieved after reopening in England and Wales provide a glimmer of hope for Primark’s recovery.

In terms of product demand, Primark has observed strong consumer interest in nightwear, lingerie, and leisurewear. Furthermore, compared to previous reopenings, the company has experienced excellent demand for its fashion ranges, particularly womenswear. This suggests that shoppers perceive the easing of lockdown restrictions as a signal of a more stable return to normality. Primark also mentioned that customer response to new spring/summer trends showcased on its digital platforms has been very positive.

Despite the challenges posed by the pandemic, Primark remains committed to expansion. The company has a robust pipeline of store openings planned in several growth markets, particularly in southern and eastern Europe. It sees further opportunities for growth in countries such as France, Spain, Portugal, and Italy, where the Primark brand resonates strongly with consumers. Additionally, Primark intends to accelerate its growth in the US over the next five years, as evidenced by its recent lease signing for a new store near Washington DC.

Useful Links:
1. BBC: Primark sales surge as Covid boost lifts profit
2. Reuters: Primark owner sees 700 million pound sales hit from COVID-19 impact