Primark Downgrades Sales Forecast Amid Weak UK Consumer Confidence and Rising Costs

Associated British Foods Plc (ABF), the parent company of Primark, has revised its sales growth forecast for the popular fashion retailer, citing declining consumer confidence and rising operational costs in the UK retail sector. The company now expects low-single digit growth for Primark in 2025, a downgrade from its previous projection of mid-single digit growth, reflecting the broader challenges facing the high street.

Weak UK Sales Impact Overall Performance

In the 16 weeks ending January 4, 2025, Primark reported a 6.4% drop in like-for-like UK sales, covering the crucial holiday shopping period. The decline was attributed to a combination of cautious consumer spending, unseasonably mild autumn weather that dampened demand for seasonal clothing, and economic uncertainties. As a result, Primark’s market share in the UK fell slightly to 6.8%, further reflecting the challenging retail environment.

Despite the weaker performance in its core UK and Ireland market— which accounts for approximately 45% of Primark’s total revenue—the company reassured stakeholders that its adjusted operating profit margin remains stable, supported by strategic cost management initiatives.

International Markets Fuel Growth

While Primark faces headwinds in its home market, international expansion continues to drive overall growth. The retailer reported strong sales performances in its key growth markets, with:

• The United States seeing a 17% year-on-year increase, driven by store expansions and increased brand awareness.
• Central and Eastern Europe recording a 22% rise, benefiting from strong consumer demand and strategic store openings.
• Positive growth in Spain, Portugal, France, and Italy, further solidifying Primark's position in continental Europe.

During the reported period, Primark opened eight new stores, relocated two, and expanded one, contributing 4% to total sales growth. The company also accelerated its store refurbishment programme, enhancing the in-store shopping experience for customers.

Holiday Season Boost and Strategic Initiatives

Despite sluggish performance in the earlier part of the period, Primark saw a notable rebound during the December holiday shopping season, driven by high demand for:

• Menswear and kidswear, both of which performed exceptionally well.
• Performance, leisure, and nightwear collections, which resonated strongly with consumers.
• Successful collaborations with celebrities like Rita Ora, Paula Echevarría, and Kem, boosting brand visibility and appeal.

Primark also expanded its click & collect service, now available in 113 UK stores, further integrating its digital and physical retail channels to improve customer engagement and convenience.

Rising Costs and Economic Uncertainty Pose Challenges

Primark’s challenges are not limited to consumer sentiment. Rising operational costs—including increased wages, national insurance contributions, and the impact of upcoming tax reforms—are expected to add tens of millions of pounds in additional expenses.

AB Foods CEO George Weston acknowledged the mounting pressures, stating that the UK government’s budget measures and ongoing economic uncertainty are key factors weighing on consumer spending.

According to a recent survey by the British Retail Consortium, nearly 50% of consumers expect economic conditions to worsen in the next three months, further highlighting the cautious outlook for the retail sector.

Primark’s Long-Term Growth Strategy

Despite current challenges, AB Foods remains committed to its long-term strategy for Primark, focusing on:

• Expanding store footprints across Europe and the US, with new locations planned in key cities.
• Enhancing supply chain efficiency to mitigate cost pressures.
• Investing in sustainable fashion initiatives, aligning with evolving consumer preferences.

Primark aims for low-single digit sales growth in 2025, primarily driven by its international expansion plans. The US and European markets are expected to contribute significantly, while the company continues to address the UK market’s evolving dynamics.

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Market Reaction and Future Outlook

Following the announcement, AB Foods' stock fell by 1.9% in early London trading, reflecting investor concerns over the retail sector’s outlook. Over the past year, the company's shares have declined by 18%, highlighting broader challenges in the retail industry.

Equity analysts, including James Grzinic of Jefferies, have expressed concerns about the valuation outlook for AB Foods, citing a combination of declining UK sales and heavy investments in new markets, particularly in the US.

However, AB Foods remains confident that its diversified portfolio—spanning sugar, agriculture, and ingredients—will help offset the volatility in the fashion retail segment.

While Primark continues to face significant challenges in its home market, its global expansion and digital transformation efforts provide a silver lining. The retailer’s strategic focus on cost management, international growth, and product innovation will be crucial in navigating the evolving retail landscape.