Primark continues to buck the trend with strong sales but online rivals like Boohoo Group PLC (LON:BOO) pose a threat to the high street discount retailer.
On Wednesday, Primark’s parent company Associated British Foods plc (LON:ABF) said its star asset posted a 25% leap in adjusted operating profits to £426mln for the year to March 2 on improved margins and a 4.4% increase in revenue to £3.6bn.
READ: Weston family to pocket another £50mln as AB Foods hikes dividend despite first-half profit plunge
Boohoo, which owns the fashion website of the same name, as well as the PrettyLittleThing and Nasty Gal brands, reported a 38% jump in pre-tax profit to £59.9mln and a 48% rise in revenue to £856.9mln for the year ended February 28.
“Primark remains the destination for affordable yet fashion-forward purchases, with its UK clothing market share for 2019 forecast at 6.9%, just behind M&S – though it has plenty of potential to leapfrog the market leader,” said Chloe Collins, senior retail analyst at GlobalData.
“For a retailer which solely relies on bricks-and-mortar this is clearly impressive, however online pureplays Boohoo and PrettyLittleThing continue to bite and Primark will remain under attack, making further product and price investments imperative to maintain appeal.''
Former Primark executive takes the helm of Boohoo
Boohoo’s new boss John Lyttle is the former chief operating officer of Primark.
READ: Boohoo posts sharp rise in 2019 profit and revenue, led by growth at PrettyLittleThing and Nasty Gal
Lyttle became chief executive of Boohoo in March after eight years at Primark where he oversaw a turnover growth of 158% to £7bn and improved operating profit by 116% to £735mln.
'One or two signs' Primark is slowing down, says Hargreaves Lansdown
Primark’s sales last year were boosted by increased selling space. However, on a like-for-like basis, sales fell 1.5% amid a tough retail market.
“The constant addition of extra sales space is driving the top line forwards, but with like-for-like sales in decline there are one or two signs this fast fashion brand is slowing down,” said George Salmon equity analyst at Hargreaves Lansdown.
“Primark’s pricing point means there’s a reason it’s focused solely on bricks and mortar retailing, but one can’t help but think this is holding the top line back - especially since rival boohoo, which is now headed up by former Primark boss John Lyttle, posted a near 50% rise in sales on the same day as these results were released.”
AJ Bell investment director Russ Mould said the challenge for Primark is to “keep flexing its muscles” by buying material at the best price, keeping tight stock management and avoiding discounts to protect margins.
Little work for Boohoo's new boss
Turning to Boohoo’s full year results, Mould said the sharp rise in revenues is a “nice backdrop” for Lyttle to start implementing his own take on how to increase the company’s size and scale.
He noted that PrettyLittleThing continued to deliver the fastest growth with revenue approaching the same level as the core Boohoo brand.
Boohoo bought a controlling 66% stake in PrettyLittleThing in 2016 and can exercise an option to buy remaining shares in February 2022.
“It would be fair to suggest it will have to pay at least £400mln to buy the final slug of PLT,” Mould said.