Primark unleashes panic at Inditex

The matrix of Primark has unleashed the alarm in the textile sector, with Inditex as one of the injured. Associated British Foods It has sunk 7.6% on the London Stock Exchange, although the fall has hovered around two digits during part of the day this Thursday. Current levels for the owner of ‘fast fashion’ go back to lows not seen since October and November 2012, in the midst of the global debt crisis.

The reason for this collapse is the prospects on earnings and profitability for your next fiscal year, a profit warning that confirms the weakness of the textile sector in the face of high world inflation, especially in countries with greater consumer power, such as the United States and Europe. And it is that, the sector is practically drowned by the high prices of the energy and the cost of the dollar.

In continental Europe, the figures will be weaker than expected between October and December of this 2022 due especially to inflation

The group says Primark will increase sales by 40% this year, to £7.7bn at constant prices, without calculating with the pound plummeting to lows not seen since 1985.


In this sense, it has been indicated that the UK comparable sales facing the last part of the year they will reach levels close to the months prior to the pandemic. However, in continental Europe, the figures will be “weaker than expected” between October and December of this 2022 due especially to inflation. In this way, operating margins will reach 8% in this second semester compared to 9.6% in the first six months of the year.


However, the picture looks worse for the fiscal year. In this sense, it expects sales growth driven “by prices” and the “acceleration of the expansion of its stores.” Thus, it also visualizes a “significant volatility” in the market that affects costs due to the strengthening of the US dollar in the final stretch of the year and energy costs, “higher”. In this way, “the disposable income of consumers will decrease as a result of inflation”, the company has indicated. A warning to navigators since the textile would not be the only sector affected for this reason.

To mitigate the effects of inflation on raw material costs, Primark will launch new, but limited pricing actions for the next financial year. “For the next fiscal year, the operating profit margin is now expected to be lower than the second half of this fiscal year,” the company said in a statement to investors.


Thus, Primark will bear the costs of inflation, without increasing prices. To do this, it will reduce its own profitability in those two points, while optimizing processes to gain efficiency. This warning to the market has spread to the rest of the sector. Inditex has fallen more than 3%, although the rise in interest rates by the European Central Bank has encouraged investors and has left the fall at 1.7%. H&M, for its part, 1.46% has been left; while M&S (Mark & ​​Spencer) has sunk more than 3.5%. Hermes, for its part, has managed to close in positive, while Louis Vuitton it has also escaped from the red numbers, although these firms are luxury.

Likewise, the parent company of what is known as the ‘textile Carrefour’ will study the payment of the dividend at the end of this year due to liquidity and growing debt, located at 1,700 million pounds sterling. It would not be the first time that the group decided to eliminate shareholder remuneration, it did so in 2020 with the pandemic. On the other hand, it has revealed some hints about its digital business, such as the online store launched in the United Kingdom in April and that will be developed before Christmas for other markets, although it will only offer baby clothes.


AB Foods shares fell 8% on the London Stock Exchange, posting their biggest drop since March 2020, after the group said it expects fiscal 2023 operating profit and earnings per share to be weaker than this year. exercise.

At Inditex, meanwhile, things are not going well. On the one hand, this profit warning it harms the sector, and on the other hand, the perspectives of the analysis houses point to falls in the Stock Market. RBC has cut the target price of the Galician giant to 28 euros per share, 3.4% below the previous one. From the closing levels of this Thursday, Inditex could rise close to 30%.

The pressure of rising consumer prices is taking its toll on large and small companies in the retail sector. Thus, investment firms not only cautiously value the company that presides over Martha Ortega, but the opinions for their counterparts show the “storm” that is to come for the sector. The Galician textile company sinks 25% since January. Despite the good results obtained in the last quarter and the good forecasts for the figures for its second fiscal quarter that it will present on September 14, the company has not finished chaining the necessary increases to overcome its bad year.

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