Shares in Primark’s owner slump on back of profit warning as budget fashion chain is forced to slash prices
The owner of once booming fashion giant Primark suffered a £1.8billion hit as it warned the chain was forced to slash prices to shift unwanted stock.
Primark has for years put rivals to shame, despite not selling clothes online and focusing on the high street instead. But it has been caught out by weak consumer confidence and cut throat competition. One analyst warned: “It’s a far cry from the halcyon days where Primark could do no wrong.”
The scale of the tough trading prompted owner Associated British Foods to issue an unscheduled stock market update on Thursday, in which it warned annual profits would be down on last year’s just over £1.7billion haul.
Primark’s worldwide sales fell by 2.7% in the 16 weeks to January 3, ABF said, with growth in the UK offset by falls in Europe. The update triggered a near 12% slump in ABF’s share price, wiping £1.8billion off the sprawling group’s stock market value.
Primark has grown to become a market leader through its combination of budget prices and sharp ranges. And as competitors struggled, the chain powered ahead.
But the chain has stumbled of late, with the likes of Boohoo, Zara and Chinese fast fashion giant Shein encroaching on its territory.
To add to its issues, Primark boss Paul Marchant quit last April after a probe into his behaviour towards a woman. He stepped down as chief executive with immediate effect after his alleged conduct “in a social environment”. The exact details of the incident have not been disclosed.
Primark’s UK sales rose by around 1.7% over the past 16 weeks in what ABF called “a difficult clothing market, particularly over Christmas”. That at least marked an improvement from the 2% fall in the six months to mid-September.
But where Primark has continued to struggle is in mainland Europe, where sales tumbled 5.7% in the most recent period, and especially in France and Italy. Bosses responded to the weak demand with “significant” price cuts – known as markdowns – to offload clothes, though less so in the UK than other countries.
George Weston, ABF chief executive, said: “Primark has had a challenging start to the financial year, with a mixed performance. In the UK, focused actions and investments to strengthen our customer proposition have driven improved trading and market share gains, while trading has remained weak in continental Europe.”
Eoin Tonge, Primark’s interim chief executive, said its stores in Europe were being impacted more by competition from physical stores than online rivals. He signalled the roll-out of a click and collect service in its European arm, after having introduced it to all stores in the UK.
Mr Tonge also warned analysts that Primark’s trading in the US would be “bumper” after what ABF called a “volatile” environment which had hit shopper sentiment.
Dan Coatsworth, head of markets at investment platform AJ Bell, said: “Many people are loathed to spend a lot of money. This is understandable given the jobs market is fragile.
If someone is worried about job security, the last thing they will do is go on a spending spree. Opting for cheaper clothes is a natural decision in this environment, and Primark is the go-to name on the high street for lower priced wares.
“Marks & Spencer and Card Factory have both recently bemoaned UK high street conditions, so one might have expected Primark to deliver a Grinch of a festive update for its homeland territory. Fortunately, its UK stores did well, particularly with womenswear. Sadly, Primark’s mainland European stores had a terrible time, with a large decline in sales. “Even the US stores were volatile. When all the different territories are factored in, Primark has disappointed big time and forced management to slash prices to rock bottom levels to clear inventories and stop its stores from gathering dust. It’s a far cry from the halcyon days where Primark could do no wrong.”
ABF’s finance boss Joana Edwards added that the group’s US arm had suffered “following everything that’s been happening from April onwards”, highlighting weak demand among Hispanic customers and its grocery business. Anti-immigration raids championed by US President Donald Trump have affected the Hispanic population in the States, prompting some to switch to online shopping.
It comes as ABF weighs up listing its Primark arm as a separate business in the next two years. ABF, whose other businesses range from sugar and Kingsmill bread to Twinings tea and Ryvita, previously announced the potential move alongside annual results.
