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Supply chain problems hit Primark as it hints of a new digital future

Hargreaves Lansdown’s Susannah Streeter discusses the outlook for fashion chain Primark.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, comments:

“For now Primark is still firing on all cylinders and its robust operating model meant even the pingdemic, which dented summer sales, didn’t prove the bump in the road to veer off course.

Although fourth quarter sales were disappointing, full year adjusted operating profits are now forecast to come in even higher than expectation, as lower staff and stores operating costs have meant profit margins have increased. Given weaker sales in July and August, this is no mean feat particularly as the retailer also has had to shift a huge amount of unsold stock due to lockdown closures.  The company though is not immune to supply chain issues, with delays to the handover of autumn winter inventory caused by port disruptions. That’s led to concerns trading for the upcoming year might not be as smooth, with the share price falling around 3% in early trading.

For now the company is certainly well placed to pay back, as it’s promised, the £121 million in job retention support it had claimed from the government. That’s despite ongoing lower footfall in Spain, Portugal and France where social distancing restrictions and the drop in international tourists are still causing a headache.

Although Primark has snapped right back into the game, pandemic lessons are clearly lingering and the £1.1 billion in lost sales due to store closures won’t be forgotten overnight. There will now be investment into a new digital platform, and although it’s not clear if it will be transactional, the fact the company says that Primark is on the hunt for talent to create a new digital capability in the business seems to be a big hint that online sales will be part of the retailer’s future.

At the moment it’s still focusing on its tried and tested model of using online for marketing of in-store ranges with a new improved customer website due to be launched next year, providing details of product availability in its shops.

As Primark powers on, swathes of ABF’s food business has proved equally resilient with Sugar expected to also deliver a greater improvement in adjusted operating profit. The trend for lockdown baking seems to have endured with the ingredients division seeing an acceleration of demand.”

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