PRIMARK (LSE: ABF) FY18 Results: Strong Summer Sell Through, Weakening US Dollar Revives Margins
Key Points
- Associated British Foods (ABF) reported results for FY18 ended September 15. This report focuses on results for Primark, the company’s retail business.
- Primark grew FY18 sales by 5.2% at constant currency, driven by a strong UK performance. Operating profit jumped 15% (13% at constant currency) to deliver an operating margin of 11.3%, up 90 basis points (bps) from FY17.
- During the year, Primark expanded retail selling space by a net 0.9 million square feet. The retailer plans to add over 1 million square feet of net selling space in FY19.
FY18 Results
ABF reported results for FY18, the 52-week period ended September 15. This report focuses on results for Primark, ABF’s retail business.
Sales: Primark grew FY18 sales by 6% as reported and by 5.2% at constant currency to £7,477 million.Comparable sales fell 2.1%.
ABF said that “Primark performed particularly well in the UK” as total UK sales rose 5.3%. UK comparable sales grew 1.2%, with strong comparable sales growth in the first half slightly offset by the marginal decline in the second half. Primark’s summer range saw strong sell-through in the UK resulting in lower-than-expected markdowns. ABF added that early trading of Primark’s autumn and winter range has been positive.
In the eurozone, sales accelerated by 4.7% year over year at constant currency but comparable sales fell 4.7%. France, Belgium and Italy posted “especially strong” growth but unseasonable weather in three separate periods of the year, particularly in northern Europe, and soft trading in a “weak German market” drove down sales.
In the US, comparable sales grew (by an unspecified amount) in the second half. ABF said it is “very pleased” with Primark’s performance in the region.
Operating margin: Primark’s operating margin expanded by 90 bps to 11.3%, versus a contraction of 120 bps last year. The company attributed the expansion to the impact of a weakening US dollar on purchases and better buying. Lower markdowns, which were the result of a strong summer sell-through, also drove operating margin improvement, the company said.
Selling space: During the year, Primark opened 15 net new stores and expanded retail selling space by a net 0.9 million square feet. Primark closed FY18 with a total estate of 360 stores trading from 14.8 million square feet. During the year, Primark opened new stores in Germany, the UK, France, Portugal, Belgium, Spain, the Netherlands and the US.
Outlook
ABF expects a stronger first-half margin in FY19 driven by a weaker US dollar exchange rate for forward exchange contracts it has secured for merchandise during the period. The company anticipates a weaker second-half margin if its spring and summer collection is bought at current exchange rates. Overall, the company expects the full-year margin to be broadly in line with that of FY18.
In FY19, the company plans to add over 1 million square feet of net selling space. New Primark stores have already opened in Germany, France and Spain and new stores in the UK, France, Belgium and the Netherlands will open later this year. Primark will also open its first store in Slovenia in 2019, making it the retailer’s twelfth country of operation and has plans “to enter a number of other markets in central and eastern Europe over the coming years.”