Mon. Dec 6th, 2021

Primark swims against the tide. While other retailers are increasing online sales, the fast-fashion chain is building 130 more stores over five years. His concession to the world of e-commerce? A redesigned, non-transactional website to be launched next year, initially in the UK.

Major changes are underway at owner Associated British Foods. The FTSE 100 retail-to-grocery conglomerate is adapting its proposal to investors.

Pre-pandemic, it was a game on a fast-growing retail segment, which in 2019 accounted for half of revenue and two-thirds of profit. Groceries made up about a fifth of the revenue and sugar was a perennial game card, changing from profit sweetener to decline.

Restrictions have changed the mix and halved the retailer’s profit share in recent years. Groceries took up much of the weakness, offset by sales and fatter margins.

That of Primark planned store expansion – mainly in the USA as well as Europe – places a dip in growth evidence. ABF seems to be acknowledging so much with its new capital allocation policy, which will return more cash to investors through repurchases and a special dividend, as long as leveraged financing remains below 1-time adjusted ebitda.

The first payout, at 13.8p per share, brings the total dividends for the year to 40.5p – a return of 2.2 percent. That was enough to cheer investors, who pushed the share price up more than 6 percent on Tuesday morning. But it will take more than that to maintain momentum. ABF outperformed benchmarks and peers like Next. This reflects his refusal to entertain e-commerce in a time of closed shops.

To its credit, Primark stores, when open, have an enviable magnetism for shoppers looking for cheap, portable equipment. If there are no more closures, ABF expects Primark sales to increase by “at least” the £ 2 billion lost by closed stores in the past financial year. Adjusted operating margins, at 5.7 percent the previous time, are expected to recover to above 10 percent.

In contrast, it has to contend with widespread supply shortages and food inflation. It is not yet a former growth stock, but giving back more cash to investors suggests a new chapter.

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