Primark Warns on Profit; Fraser Eyes Tailor to Royal Court – Sourcing Journal

Associated British FoodsThe annual update (ABF) includes a markup warning for the retail value chain Primark. And Frasers Group is among those expected to submit a revised bid for 250-year-old Saville Row tailor Gieves & Hawkes.

As the United Kingdom mourns the death of Queen Elizabeth II on Thursday after a reign of seven decades, new Prime Minister Liz Truss faces the daunting task of steering the British economy through skyrocketing inflation.

primark earnings watch

Inflation has dampened Primark’s profit margin forecasts and its plan to keep customer prices intact. ABF said it expects value chain profit margin for next year to be “lower than the 8.0 percent operating profit margin expected for the second half of this fiscal year” which ended on September 17. It is scheduled to report results for the full year on November 1. 19

ABF said UK comparable sales in the fourth quarter rose in the range of 13 percent year-on-year as people returned to their usual shopping habits once Covid restrictions eased. The UK results were offset by weaker-than-expected performance in continental Europe, where like-for-like sales were just 1 percent higher than last year. In the US, where new store openings put total sales 27 percent above pre-Covid levels, comparable sales were “close” to where they were before the pandemic.

ABF said Primark’s full-year adjusted operating profit is expected to be 9.6 percent for the fiscal year just ended, and second-half adjusted operating profit margin is expected to be 8 percent. Total sales are expected in the range of 7.7 billion pounds ($9 billion), or 40 percent more than last year in constant currency. ABF also said its “click and collect” trial is on track for a UK regional launch just before the Christmas sales season, which will now include a “much wider range of children’s products”.

ABF said the company has made good progress in “developing a strong pipeline of new online stores with our ambition to grow store equity to some 530 stores by the end of our 2026 fiscal year.” Most of next year’s new stores are in the US, France, Italy and Spain.

ABF said it expects sales growth next year through new stores and comparable growth increases. “Primark has already been managing the challenges of supply chain disruption, inflation in raw material and energy costs and in labor rates,” ABF said. He noted that in addition to price increases, ABF plans to improve labor efficiency in stores and achieve lower operating costs at Primark. The company also cited the strength of the US dollar against the British pound and the euro, along with volatility in energy costs, as headwinds. Aside from what has already been completed or planned, ABF said there will be no more price increases for next year. “We believe this decision is in the best interest of Primark and supports our core proposition of everyday affordability and price leadership,” ABF said.

Gieves and Hawkes Update

Revised bids are due this week for Gieves & Hawkes, the tailor serving the British royal court. the label was put on sale in July for liquidators of parent company Trinity Groupwhich in turn was affected by the financial struggles of the corporate owner Shandong-ruyi. Trinity bought the menswear retailer in 2012 for 32.5 million pounds ($38.7 million) plus profits.

Acquisition-hungry Frasers Group, which last month offered $16.5 million for the remaining shares of MySale, is one of the bidders for the Saville Row tailor. Others believed to be interested include private equity firms and Marks & Spencer, financial sources said on Monday.

Prime Minister Liz Truss’ power freeze plan

On Thursday, Truss unveiled a plan to freeze skyrocketing energy prices for millions of homes that would take effect next year for 24 months. The move is intended to help households deal with inflation, potentially freeing up some of their money to spend on nice items like new clothes and shoes. But it was not immediately clear what his plans might be for the business rate multiplier, a business tax that retailers hope will be frozen for the next two years to protect them from inflation-driven increases.

Since October 2021, the British Retail Consortium (BRC) has been pushing to cut business tax charges to prevent further store closures and job losses. Without any substantial reduction, “four out of five retailers would be forced to close additional stores across the country,” the BRC said.

Michael Ashley’s Frasers Group has been particularly vocal about the need to cut business fees and the new CEO michael murray he said in July in reporting annual results that the costly tax could amount to as much as 50 percent of a store’s annual rent. He said consumers will continue to flock to stores for the experience, but explained that the high costs of building and upgrading stores plus the “archaic merchant fee regime” created an “extremely challenging environment for opening and operating brick-and-mortar stores.” “.

In August, while still campaigning against former finance minister Rishi Sunak, reports suggested Truss would consider a tax cut. He is also said to be reviewing a 5 percent value added tax (VAT) cut across the board, which would also help struggling households.

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