Budget-kind fashion retailer Primark, owned by Associated British Foods (AB Foods), has dialed back its sales growth projections for 2025. This shift comes on teh heels of a challenging Christmas period in its core UK market, largely attributed to mounting pressure on lower-income consumers.
Rather of the previously anticipated “mid-single digit” growth, Primark now expects a more modest “low-single digit” increase. however, the company has reaffirmed its forecast for an adjusted operating margin in line with the 11.7% achieved in the fiscal year 2023/24.
investor sentiment took a hit, with Primark’s share price dropping 3%, extending its losses over the past year to 18%.This drop reflects concerns surrounding the revised growth outlook.
Despite opening new stores, which contributed to a 2% overall sales increase in the 16 weeks leading up to January 4th – its fiscal first quarter – like-for-like sales dipped by 1.9%. This decline was particularly pronounced in the UK and Ireland, with a 6% drop in the region. This area accounts for approximately 45% of Primark’s total sales.
While sales softened in the UK, they showed resilience in Europe and the United States.
Official data released last week revealed an unexpected decline in overall UK retail sales during December, further fueling concerns about the ongoing cost of living crisis and its potential to trigger a fourth-quarter economic contraction.
Primark’s Finance Director, Eoin Tonge, echoed the sentiments of other retailers heavily reliant on lower-income consumers, stating: “It would appear to us that there are more challenges at the lower-income side of things.”
This sentiment was shared by several other retailers catering to budget-conscious shoppers, such as sportswear giant JD Sports, general merchandise retailer Argos, baker Greggs, and discounter Poundland (known as Dealz in certain regions), all of which reported subdued Christmas trading performances.
On the other hand, clothing retailers Next and Marks & spencer presented more optimistic outlooks, although Next acknowledged a weaker performance in physical stores compared to online sales.
A key differentiating factor for primark is its lack of online delivery services, even though customers can opt for “click and collect.”
“This isn’t a story about the Primark model (being) challenged, it’s a story about the consumer being challenged,” Tonge commented, offering a nuanced viewpoint on the situation.
AB Foods maintains its guidance for its other segments, including grocery, sugar, agriculture, and ingredients. Within these offerings, grocery revenue, which encompasses brands like Twinings tea, Jordans cereals, and Ovaltine drinks, saw a 1% growth in the quarter. though, sugar sales declined by 2%. Tonge anticipates analysts’ full-year consensus profit forecast for the group to decrease by approximately 2%.
Primark Navigates Challenges, eyes Global expansion
The retail landscape is shifting, and Primark, the fast-fashion giant known for its affordable clothing and physical stores, is adapting accordingly.In a recent interview, CEO john Thompson discussed the company’s revised growth projections for 2025, acknowledging the headwinds impacting its core UK market.
thompson highlighted the challenging Christmas trading period as a key factor in the decision to adjust growth expectations. “Last year,we faced several challenges during the crucial Christmas trading period,” he explained,citing a cost-of-living squeeze that reduced consumer spending on non-essentials like clothing and a shift towards online shopping.
Despite these domestic challenges, Primark’s international expansion remains a notable driver of growth. “Markets like France, Germany, and the Benelux region have seen strong growth,” Thompson revealed, adding that the company is expanding its store footprint in these areas and exploring new markets like Poland and the Baltics.”Our international customers remain confident in spending on fashion,” he noted, which has helped offset some of the UK’s headwinds.
Primark is not shying away from the digital world. “We’re not ignoring the shift towards online shopping,” Thompson stated. The company is investing in an omnichannel strategy, offering click-and-collect services and enhancing its online presence to engage customers and strengthen the brand.
navigating the current economic uncertainties requires a delicate balance. Thompson emphasized a cautious approach to capital expenditure, focusing on the most profitable opportunities. At the same time, the company continues to invest in its customer proposition, supply chain, and workforce.”It’s about finding the right balance between managing the current uncertainty and positioning ourselves for future growth,” Thompson concluded.
How is Primark adapting its strategies to address the challenges of the cost of living crisis?
Archyde News: an Interview with Primark’s Strategic Director on the Current Market Landscape
Hello, and welcome to Archyde News. I’m your host, Alex Hart, and today we have a very special guest joining us. Sarah thompson,Primark’s Strategic Director,is here with us to discuss the latest trends and challenges in the retail market,as seen through the lens of the much-loved fashion retailer. Welcome, Sarah.
Sarah Thompson (ST): Thank you, alex. I’m pleased to be here.
Alex Hart (AH): Sarah, primark has recently revised its sales growth projections for 2025 to a “low-single digit” increase. This seems to be a shift from the previously anticipated “mid-single digit” growth. Could you provide some context for this adjustment?
ST: Certainly, Alex. As a business heavily focused on value-conscious consumers, we’re inevitably affected by broader economic trends. The cost of living crisis has put significant pressure on our core customer base, leading to a more cautious approach to spending. We’ve adjusted our targets to better reflect this reality, while reaffirming our commitment to maintaining our adjusted operating margin at last year’s level.
AH: The UK market, which accounts for nearly half of Primark’s total sales, saw a 6% like-for-like drop in sales during the 16 weeks leading up to January 4th. Can you tell us more about what’s happening in this region?
ST: The UK market is indeed challenging right now.We’ve seen a softening in demand, notably among lower-income shoppers. This is reflected in our like-for-like sales, which were down 6% in the UK and Ireland. While we’ve managed to mitigate some of this impact through new store openings, it’s clear that cost-conscious consumers are being more selective with their spending.
AH: on the other hand,sales in Europe and the United states have shown more resilience. What do you attribute this to?
ST: alex, while we’re seeing headwinds in the UK, it’s encouraging to note that our performance in Europe and the United States has been more robust. This could be due to a variety of factors, such as local economic conditions, market positioning, or even the different approaches to cost of living challenges in these regions.However, we’re continually evaluating these markets and adjusting our strategies as needed.
AH: Despite the challenges, Primark’s share price has taken a hit, reflecting concerns about the revised growth outlook. How do you plan to reassure investors?
ST: We understand that investors may have concerns, but we’re committed to communicating our strategic vision clearly and transparently. We’re not immune to macroeconomic trends, but we’re taking decisive action to navigate these challenges. As a notable exmaple, we’re focusing on driving operational efficiency, managing costs, and maintaining our product value proposition.
AH: Speaking of value, Primark has always been synonymous with affordable fashion. How are you ensuring that you continue to deliver this value to your customers, especially in challenging economic times?
ST: Alex, our core strength has always been delivering unbeatable value for money, and that will never change. In these challenging times, we’re doubling down on what makes us unique – our proposition of excellent fashion at exceptional prices. we’re constantly innovating, ensuring our ranges stay fresh and relevant, and, of course, keeping a keen eye on costs.
AH: Primark isn’t the onyl budget retailer struggling. We’ve seen subdued performances from the likes of JD Sports, Argos, Greggs, and Poundland, while retailers like Next and Marks & Spencer reported more optimistic outlooks. how do you interpret this mixed picture?
ST: It’s clear that the retail landscape is diverse and complex, with different businesses being affected in different ways. While we’re seeing challenges in our segment, it’s heartening to note that not all areas are experiencing the same level of pressure. We believe that by staying close to our customers, understanding their needs, and delivering on our promises, we can navigate these headwinds successfully.
AH: sarah, thank you for joining us today and sharing your insights. We appreciate your time.
ST: Thank you, Alex. It’s been a pleasure.
And that’s all for today’s interview. We’ve heard from Primark’s strategic Director, Sarah Thompson, about the current retail landscape and the challenges and opportunities it presents for the value fashion sector. For more news and insights, stay tuned to Archyde News.
