Fast Fashion Brand Primark Will Fall Into Recession

Primark stores

In such an unstable world

Under the retail market,

Brands have fallen apart one after another, except the leader.

The parent company Inditex SA (ITX.MC) Yin Di Textile Group has maintained a steady and rapid growth in sales and profits after a brief challenge in the last fiscal year. H&M Hennes & Mauritz AB HMb.ST (HMb.ST), the world's second largest apparel retailer, hit its lowest sales growth rate in three years, and Forever 21.

Now, the market is expected to fall into a recession in recent years, with a very low price and a strong share of Primark in Europe and the United States.

Morgan Stanley (NYSE:MS) Morgan Stanley analyst Geoff Ruddell expressed concern about the same store sales performance in the past 18 months in the latest research report, and at the same time, according to the market research company Kantar Group's research on the weakening trend of retail sales in the UK, it is expected that the second half of fiscal year August will continue to decline in the first half of fiscal year, with a 1% decline in the same store sales, and the same store sale will appear for the first time in more than 15 years.

Geoff Ruddell said it was not clear why Primark sales slowed down significantly, but it was certainly related to structural factors, including the reduction of passenger traffic on the high street and the pfer of purchase behavior to e-commerce.

Primark has been refusing to build e-commerce websites, although three years ago, it was briefly tested in the UK's largest fashion supplier, ASOS PLC (ASC.L), but it was announced three months later.

The issue of return and delivery and the high cost of ASOS PLC made the already priced Primark less profitable, and the competition from other brands of ASOS PLC platform was also fierce.

At that time, John Bason, chief financial officer of Primark parent company Associated British Foods PLC (ABF.L) Ying Lian food group, said that after that, Primark would not cooperate with other electric providers, nor did it plan to launch its own trading website.

He acknowledges that the lack of online sales will limit the customer scope of Primark, but the current sales density and customer flow are enough to drive brand sales growth.

Data show that as of February 27th, the Primark medium-term revenue increased by 4.7% to 2 billion 667 million pounds, excluding the impact of the exchange rate rose 7%, slightly lower than the group expected 7.5%.

Growth is mainly driven by new retail sales in the United States and other markets, while sales in the same store are down less than 1%, which is also unchanged from the group's expectations in the same period last year.

In terms of profits, Primark continued to suffer from the strong dollar's pressure on procurement costs. The adjusted operating profit decreased by 2.8% to 313 million pounds a year, excluding the exchange rate effect, and the operating profit margin also decreased by 1% to 90 basis points to 11.7%.

In the two quarter earnings report released yesterday, H&M Hennes & Mauritz AB also revealed that the profit in the first three months ended May was affected by the rise in procurement costs and a 17% drop in sales.

Associated British Foods PLC (ABF.L) Ying Lian food group will release its 3-5 quarter three quarter earnings in July 7th.

The sales of H&M Hennes & Mauritz AB in the same period increased by only 5% of the local exchange rate, while excluding the contribution of the new sales area, Credit Suisse Group AG (VTX:CSGN), Credit Suisse estimated that the group's same store sales fell by 5.3%, the group management blamed 3. In April, the main European market weather was extremely cold and cold, which inhibited the demand for spring clothes, and the main Primark business in Europe was also more or less affected by the same factors.

Analyst Geoff Ruddell lowered Primark's annual net sales growth forecast from 15%-20% to 10%-12%, and its independent valuation fell from 22 billion 200 million to 15 billion 100 million.

But he stressed that the brand is still optimistic about the cheap and fast fashion business model and the development prospects of the United States, but believes that sales in the United States will have a real boost to its performance in the 2019 fiscal year.

As Primark contributed nearly 65% of its operating profit to Associated British Foods PLC union group, Geoff Ruddell analyst, according to the gloomy sales prospect of Primark, reduced the rating of Associated British Foods (Foods) from "win market" to "flat market performance", and the target price was further lowered to close to 2650 pence. The original target price was 3500 pence.

Associated British Foods PLC (ABF.L) fell 3.4% on Wednesday, the worst performing blue chip in the day before the referendum in Britain.