Better fashion merchandising helped both Primark and Marks & Spencer (M&S) grow sales in the full year and the first half, respectively.
Lower material and freight costs and new retail square footage should help Primark increase profits.
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Associated British Foods (ABF), which owns the Irish fast-fashio chain, on Tuesday reported annual results for the year ended Sept. 16, 2023. They showed that Primark’s sales rose 17 percent to 9 billion pounds ($11.06 billion) from 7.7 billion pounds ($8.88 billion) a year ago. Operating profit jumped 30 percent to 717 million pounds ($880.7 million) from 550 million pounds ($634.8 million). The fashion chain’s decision to raise some prices while cutting them on childrenswear seems to have supported sales
“At the outset of this financial year the Group was facing very significant economic challenges caused in part by major geo-political events. Looking back on the year, it is clear to me that the Group performed extremely well and is as a result now well positioned for the year ahead,” ABF CEO George Weston said. “Trading at Primark was excellent under the circumstances. At the beginning of the year we implemented selective price increases partially to protect profitability, on the grounds that the significant input cost inflation was temporary. That careful pricing delivered as intended, with customers continuing to shop with us enthusiastically.”
Weston said Primark is positioned to serve consumers facing economic uncertainty. “We continue to believe that Primark’s offer is very attractive not just to existing customers but also to new customers engaged by our digital platform, new store openings, and word of mouth which remains as powerful as ever,” he said. “With Primark margin now moving back to its historic levels, we view the future for this business with confidence.”
For the year, the company said volatile inflation threatened to disrupt consumer spending at the start of the year, and that business in the second half “remained generally robust” despite some unseasonal weather. Primark’s expansion continued with 27 new stores in Europe and in the U.S. Primark ended the year with 432 stores.
“We are pleased with trading in our new stores which are benefitting from our growing knowledge of the US consumer and the wider retail market,” ABF said, adding that it has refined the store design, size and layout and tailored its offerings to suit the U.S. consumer. The company is also investing in a new Jacksonville logistics center that it expects to open in the spring.
The U.K. Click + Collect trial, which initially focused on kid’s clothing, was extended in September to include women’s apparel. And Primark’s new website generated “strong traffic uplift” when it launched in all 16 markets this year. Customers have been using the store checker feature to see what’s available before heading out to shop.
ABF outlined ESG and Primark Cares Initiatives progress. Currently, 55 percent of clothing units sold now contain recycled or sustainably sourced materials, up from 45 percent last year and 25 percent at launch two years ago.
Primark’s expansion next year will give it 1 million square feet in new selling space. ABF expects “modest levels of like-for-like sales growth,” which combined with lower material and freight costs and an “increasingly effective digital platform and some limited pricing” should result in significant gross margin improvements. The company said Primark’s adjusted operating profit margin will be “above 10 percent with further improvement” dependending on consumer demand.
Summer apparel sales were led by a boho-inspired design trend. Primark also broadened its ranges and collaborations, and expanded its Edit collection to offer a more premium women’s essentials range. Rita Ora‘s Primark collab is driving strong sales, ABF said.
Since the start of the new fiscal year and heading into the holiday, cold weather essentials and other seasonal product lines, such as velvet plush leggings, drove strong sales. Also doing well was a resurgence in women’s partywear, tailoring separates and beauty products as people resumed social events.
Marks & Spencer
First-half profits before tax and adjusting items at M&S rose 75.3 percent to 360.2 million pounds ($442.5 million) for the six months ended Sept. 30 from 205.5 million pounds ($229.6 million) a year ago. During the first half, revenue rose 10.8 percent to 6.13 billion pounds ($7.53 billion) from 5.54 billion pounds ($6.19 billion).
“In Clothing & Home we backed lines with authority across core and seasonal product, maintaining our lead on quality and value perception and improving our style credentials,” CEO Stuart Machin said. He said sales growth was helped by investments in stores, including opening three full-line doors and refurbishing six locations. Also helping results has been the retailer’s cost-reduction program, which Machin said is on track with over 100 million pounds ($122.8 million) in savings during the half. In addition, investment in supply chain modernization is driving efficiencies, with volume growth contributing to improve margins and profitability.
Looking ahead, Machin said sales momentum continued through October as customers responded positively to Christmas offerings. “There will be challenges and headwinds in the year ahead and progress won’t be linear, but we are ambitious for future growth and are driving what is in our control,” he said.
“We are planning for a good Christmas,” M&S said, adding that it was not relying on current favorable market conditions to continue in 2024. “The outlook remains uncertain with the probable impact on the consumer of the highest interest rates in 20 years, deflation, geopolitical events, and erratic weather,” the company said, noting that its outlook is more favorable for the first part of 2024 than the back half.
Looking ahead, the company said it will focus on fewer, more strategic suppliers, as well as a “planned consolidation of denim supply” and investment in online order fulfillment capability at its Stoke and Ollerton warehouses.
The company said clothing and home goods sales in the half grew 5.7 percent. It credited this result to “more confident buying” and improvements in style offerings, which reduced the percent of sales needed at discount. Standout categories were holiday wear, up 18 percent, and women’s denim and casual bottoms, up 17 percent. Customer numbers rose and sales grew across channels, while stores outperformed online, which grew 4.6 percent, in the half as shoppers resumed more normal shopping patterns post-Covid. The retailer said it expects to see a return of stronger online growth in the year ahead.
M&S said operating margin in the half rose to 12.1 percent from 9.8 percent last year, helped by a “modest increase” in full price sales to 82 percent, lower logistics costs and better freight rates. In addition, the sales increase for the period was due in part to active app users—which rose 7 percent to 4.9 million in the six months, and resulted in over 40 percent of clothing and home purchases were through the app versus 34 percent a year ago—and an increase in the Sparks loyalty program’s membership base. “The transfer of returns to local hub stores is helping to increase the speed of refund and resale of returned stock,” M&S said.
The retailer opened a net 9 stores in the half. M&S plans include six updated retail stores during the second half. It expects to have a total of 108 stores operating a new, smaller full line format by the end of the fiscal year. And just before the half ended, M&S said it was switching to more sustainable paper bags instead of plastic.