Primark lacks fizz as it approaches its go-it-alone moment

Primark lacks fizz as it approaches its go-it-alone moment Nils Pratley After a profits dip, the chain’s demerger from its sister food company still makes sense but is unlikely to reveal tons of value

Primark brings forward home deliveries plan by two years as profits slide

T he business logic for demerging Primark from Associated British Foods’ greater Ovaltine-to-Twinings empire – an event due to happen by the end of next year – is impeccable. Read this year’s results statement and you wonder why the controlling Weston family took 20 years to get behind the idea.

One paragraph can be about a yeast plant in India or the impact of high gas prices on sugar-refining margins; the next can jump to Primark’s new “digital flywheel” or the progress of the “By Coleen” collection. Even by conglomerate standards, food staples and discount fashion has always been an odd mix. Separating into two FTSE 100 companies, with stand-alone governance, makes sense.

But it would be hard to say the rejig will reveal tons of value, another reason conglomerates often give for doing the splits. Primark obviously isn’t a hidden jewel because it already makes two-thirds of the group profit – and it isn’t currently on sparkling form either.

Or, at least, it’s not in continental Europe. A like-for-like sales decline there of 4.7% for the financial year is jarring even in the context of “weak” consumer sentiment. The way ABF tells it, the continental operation is simply a year or so behind the refresh treatment that has been administered on the UK stores. We’re talking sharper digital marketing campaigns, a rejig of ranges, the introduction of click & collect and so on.

The trouble is, the same explanation was given in January, when the gap between the home performance and that on the continent became apparent. Ten months later, the story remains largely the same. The UK and Ireland are in positive like-for-like sales territory (of 0.5%) but the continent is still miles off. Market conditions in Germany, Italy and Spain were all described as “very challenging”.

Since Britain is now the priority for a home delivery service to capture “incremental” shoppers, one can imagine the gap will remain wide for some time yet. Perhaps online-only operators such as Shein, Temu and Zalando are simply more of a headache on the continent.

None of which alters the underlying strength of the Primark machine. Never mind the U-turn on the economics of home delivery, there are still physical stores being opened, including in the US. This is still a formidable operation with almost £10bn of annual turnover.