ABF expects Primark revenue growth to be around 4% in H2, driven by a strong sales contribution from its continued store expansion programme. Like‐for‐like sales are expected to decrease by around 0.5% in H2, with growth of 0.2% in Q3 and a projected decline of around 0.9% in Q4.
ABF explained this primarily reflects unfavourable weather in the UK and Ireland in H2, which resulted in lower footfall and particularly impacted sales of its seasonal lines in womenswear and footwear.
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George Weston, chief executive of ABF, said the Group continued to perform well in the second half, delivering good topline growth which resulted in a “significant improvement” in profitability and excellent cash generation.
However, he is quick to point out that despite the British weather not in Primark’s favour this summer, the retailer experienced good overall sales driven by robust growth in other markets and new store openings.
Primark UK sales expected to be dampened by lower footfall, unfavourable weather
In the UK in H2, sales are expected to be around 0.5% lower, with like‐for‐like sales expected to decrease by around 2.0%. This has also been attributed to the lower footfall impacted by challenging weather, particularly in April and June.
ABF said that Primark’s market share decreased slightly to 6.5% in the 24 weeks to 21 July 2024 which it said reflects the lower high street footfall.
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By GlobalDataThe Group said it is benefitting from the relevance and breadth of its product ranges, including licensing and collaborations, as well as increased digital engagement with our customers.
Global market sees slightly better sales than the UK
In Europe excluding the UK, sales growth is expected to be around 5% in H2 driven by a “strong” contribution from space expansion.
According to ABF, most markets in Europe delivered strong growth in H2, including Spain, France and Italy.
“Most countries traded well with good like‐for‐like performances, although the like‐for‐like sales measure in France and Italy was impacted by the high number of store openings in the prior year. Germany and the Netherlands both performed particularly well. Ireland was a notable exception, with weather‐impacted performance more in line with the UK.”
In April, industry onlookers viewed Primark favourably after ABF announced a 7.5% surge in H1 revenue to £4.5bn ($5.56bn) thanks to increased selling space, and revealed plans to expand its click-and-collect initiative across the UK.
FY25 initial review
ABF shared that it is well positioned for further strategic progress, supported by strong cash generation and good momentum in retail and most of its food businesses.
It expects Primark to deliver good sales growth in FY25 as it continues to execute store rollout programmes and product, digital and brand initiatives. ABF forecasts adjusted operating margin in FY25 to remain broadly in line with this year’s level, as gross margins stabilise and it steps up investment in strategic initiatives to drive sustainable growth.
What the analysts say
Clive Black, Shore Capital’s head of consumer research, believes a lot is going on at ABF across five divisions and many countries which makes previews a little more “suspect” than may be the case with simple firms.
Black raised some points ahead of the group’s FY24 trading statement, noting that at its April interim results, ABF management predicted Primark to deliver further store expansion and “modest levels off like-for-like growth” in H2 FY24, driving positive volumes. By July 2024 the company expected to achieve around 7% sales growth and EBIT of over £1bn.
According to him, the management was alive to the challenges of the markets in the UK and Europe but felt that a mix of its strong value proposition, product relevance, category stretch and growth in “digital engagement” would build the top-line.
He explained: “Summer 2024 across Europe has been both wet (N&W) and hot (S) whilst secondary market data suggests that Primark may not have made the revenue progress that management may have expected, the market will, as ever, be keenly interested in where the trading dart lands.
“Whilst so, the firm has levers to pull around stock management and variable costs with FY24 consensus EBIT margin forecast to have come in at c11.0-11.5%. It remains to be seen if Primark can engineer a ‘moderate improvement in adjusted operating margin’, noting the aspiration to step-up investment to support medium-term growth, where the USA remains a source of excitement in our view.”
Black also pointed out that ABF’s profits have improved due to fewer negative external factors and successful investment. However, he adds, that as noted earlier this year, not all conditions are perfectly aligned for the group yet and further progress could bring significant medium-to-long-term benefits to earnings, capital, and shareholder returns.
He said Primark will likely continue to dominate ABF’s investment story and suggests the Group engage more with investors and analysts about the “potential and virtues” of its Food business.
“ABF is increasing its capital expenditure above the FY24 level in the next ‘few’ years. If well thought-through alongside good execution, then the basis for us to anticipate decent sequential earnings growth, shareholder friendliness and so further rating expansion may be stronger still,” concluded Black.
