Is Primark’s LFL FY23 growth forecast ambitious?
The expert said the company’s pivot to fashion has deterred many customers while the geopolitical climate is also hurting consumer confidence. “I think the push to fashion is what’s costing Primark now,” they said. “You may see a better buying-in margin, but you’ll start to see a higher markdown.”
On top of this, because Primark has upped its prices by 10-15% in response to inflation, the expert expects a drop in volume, explaining: “The general rule of thumb in a value business is you put your price up 10%, your volume will come down 10%, and you’ll net things off.”
However, they believe the company is well positioned to gain from some movement away from the mid-market segment – but to retain a trade-down customer from, for example, Next, “Primark will have to up its quality”.
The specialist also commented on costs, noting that floods and cotton challenges have kept fibre prices “fairly buoyant”. Meanwhile, higher food and energy prices are pushing up labour and production costs. “There will still be some increasing costs, I think, to the tune of 5-10%, I expect, over the next year,” the specialist said. Forex and the cost of moving goods are also expected to hit the industry hard in H2 2023.
In order for Primark to attain 10% margin in two years, the company will have to focus on inventory reduction and store staffing, we heard. The expert also believes the company’s estate is “top heavy”, with a rethink required on the current flagship format. “I don’t foresee them opening up further big 80,000-square-foot-plus stores, but sub-50 I think there is still a roadmap there.”
Despite the tougher environment, areas for opportunity in Europe include France, Italy and Spain, though the expert highlighted property challenges in the latter.
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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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