Primark growth eroded by currency volatility

Discount apparel retailer Primark has reported sales growth of 13 per cent to £5.3 billion at constant exchange rates for the year to September 12, demonstrating its continuing dominance in the value clothing market.

However it was unable to escape the effects of currency volatility, reducing its total sales growth at actual exchange rates to eight per cent.

While these results are in line with the expectations outlined in September this year, they are compounded by Primark’s two per cent increase in operating profit to £673 million at actual exchange rates – modest compared to growth of five per cent at constant exchange rates, observes Rebecca Marks, consultant at Conlumino.

Sales growth was driven predominantly by a nine per cent increase in selling space – an additional 93,000 sqm that takes the total footprint to 1.04 million sqm. Considerable expansion in Germany, Belgium and the Netherlands resulted in marginal like for like growth at constant exchange rates of one per cent, as international customers chose to shop more locally, causing sales in existing stores to decline. Primark opened its first US store in Downtown Crossing in Boston in September 2015, with 7200 sqm of selling space.

Further international expansion planned in the 2015/16 trading year will see a greater increase of 140,000 sqm across the year in northeastern US, Spain, Italy and France – its most successful market entry to date.

“However, as the retailer continues to invest in international diversification, it endures the risk of substantial movement in currency markets, subjecting the retailer to negative transactional and translational currency exposures – a major challenge that Primark faced this financial year,” explains Marks

“However, Primark believes a high proportion of this potential impact has been mitigated in-house by taking a shrewd approach to buying new season merchandise for next year.”

Marks says Primark saw a return to a more normal level of markdown this year, following exceptional trading in 2013/14, resulting in a lower operating profit margin of 12.6 per cent, down from 13.4 per cent in its last financial year.

“Inconsistent trading over the year resulted in moderated demand; while an unseasonably warm Autumn 2014 impacted sales in the early part of the trading year, Spring 2015 trading was also held back by cool weather. However, a strong Christmas in 2014 limited the impact of these challenging trading periods on its overall performance for the financial year,” observed Marks.

“Although Primark actively resists plans to go down the online route that many of its fashion peers have chosen, the retailer shows no signs of slowing down. As parent ABF looks to maintain investment in Primark’s expansion opportunities, Primark will continue to see its budget-priced clothing ardently welcomed in all new territories, with its increased scale of distribution infrastructure helping to meet demand,” Marks concluded.

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