Associated British Foods PLC (LSE:ABF)’s Primark is not resting on laurels after its post-lockdown success, however some City observers are wondering whether resisting e-commerce really is a good idea.
The fast-fashion retailer is estimated to claw back at least the estimated £2bn of sales lost due to store closures last financial year, unless more COVID-19 restrictions are imposed again, propping up group profits and earnings per share.
READ: AB Foods expects much improved profits in coming year as Primark rebounds strongly
In the year to end-September, the division’s adjusted operating profit climbed 15% to £415mln, though like-for-like sales were still 12% below pre-pandemic levels as a third of available trading days were lost because of coronavirus.
The FTSE 100 group opened 15 new stores and developed its presence in the key US and Central European markets, while now it’s targeting new openings in US, France, Italy and Spain, with the goal of reaching an estate of 530 stores over the next five years - from the current 398.
It’s also putting more effort into its digital offering, making sure it showcases more of its products, though it reiterated it will not build an e-commerce platform.
The retailer has been arguing the costs wouldn’t make financial sense and would hit margins too much, but some analysts are baffled at this strategy.
“You have to ask why on earth Primark is refusing to keep up with the times. Begrudgingly offering a website in 2021 looked to be the start of something new but then shoppers found they couldn’t buy anything from it. It’s no surprise then that revenues have been frozen in time for AB Foods. The firm can blame lockdowns all it wants,” said Dan Lane, senior analyst at Freetrade.
“It’s one thing to stick to your guns but when your stores are shuttered with no chance of reaching customers, questions have to be asked of management... Shareholders might be able to shrug off this morning’s results as another virus-hit set of numbers but the simple example of failing to adapt when it was needed most will have them thinking how management could tackle future issues.”
Join the queue (quite literally) in store to see they don't need online.....
It's margin dilutive.
Plus no one believes the analysts who are now 'boy who cried wolf' about must have online, then rapidly reversing and saying how important stores are.
Oh really. Cheers guys.
— Steve Dresser (@dresserman) November 9, 2021
Russ Mould, investment director at AJ Bell, didn’t seem as concerned.
“The outlook for the brand is certainly improving. With lockdown and forced store closures now hopefully a thing of the past, Primark can concentrate once again on its expansion plans and the US is going to see a lot more stores in the years to come,” he said.
“Primark stores used to have a reputation for being a bit of a chaotic jumble sale, with items strewn everywhere. Now they feel a bit smarter, perhaps with the management having used the downtime during lockdown to come up with a plan to improve the in-store experience.”
“The focus now is to improve operating margins, reduce costs, have a clear sustainability strategy and roll out a better online service.”
With shares surging 7.5% to 1,998p on Tuesday afternoon, it seems investors might be on board with the current plans too, although the stock is still trading 25% below pre-pandemic levels.