Market commentary

New Primark stores might be masking underlying sales declines, but they can’t disguise the damage being done to parent company ABF’s sliding profits.

The long and short of it is simply that growth is being fueled by new store openings, rather than organic improvements. It’s in Continental Europe where this is most pronounced and most concerning, with like-for-like sales slipping by 4.7% in a segment that makes up almost half of Primark’s total sales.

Whatever small amount of success Primark has had in producing organic revenue growth in the UK has not been replicated on the Continent. 

If you want a sign of the pressure this puts Retail under, just look at what’s happening to Primark's adjusted operating margin, which has slid from 11.9% to 10.2% amid weak sales, markdowns, and increased investment in prices and marketing. 

Notably, no improvement is expected next year. It looks like Primark will keep spending to keep competing on the high street, and presumably at some point home delivery. Slightly disappointingly, we still have no launch date for the service.

The picture at ABF’s food business is not much more appetising. Sugar continues to pose a problem, as adjusted operating losses widened to £47m and are expected to slide even further next year as lower selling prices and higher gas costs continue to bite. This has left ABF facing another year of profit decline.

Splitting the operations apart might make them more focused, but the risk is simply turning one struggling business into two.

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