Associated British Foods predicted that sales at its fashion chain Primark would make a strong recovery once coronavirus-related store closures, which will all but wipe out first-half profit, are lifted. Primark will lose about GBP1.1bn of sales from store closures due to lockdown in the six months to February, a small increase on the GBP1.05bn forecast last month. There will be a further GBP480m impact in the second half.
John Bason, ABF's finance director, said that even before the current round of lockdowns in Europe, trading at the discount fashion chain had been materially affected by curfews and other restrictions. As a result Primark, which does not sell online, is expected to generate about GBP2.2bn of sales in the six months compared with GBP3.7bn in the same period a year earlier. But Bason added that in the few countries where stores were trading, sales were higher and he expected a big release of pent-up demand later in the second half of its financial year as restrictions are eased.
He also said the company was better prepared for the current shutdowns than this time last year. "We have got the playbook now," he said, adding that no orders had been cancelled and that all suppliers were being paid on normal terms. As stores reopen, about GBP150m of spring and summer stock paid for and held over from last year will be sold, boosting cash flow in the second half, while GBP260m of autumn and winter ranges will be put in storage until later this year. "We aren't going to be doing fire sales," said Bason. Primark is expected to reopen 233 of its stores, which will boost its retail space trading to 83 per cent, by April 26.
It will reopen 153 stores in England on April 12, as permitted under the UK government's plan announced this week. Bason said he expected the pattern of post-lockdown trading this year may differ from the experience of June 2020, when there were fewer shoppers but they bought on average more in each transaction. "Last year we had lower footfall driven by a reluctance among many consumers to go out.
The advice was still to stay at home if possible," he said. This year, he expected more shoppers would venture out. "The vaccine is a game-changer," he said. The gradual return of travel and tourism towards the end of the year may also boost sales in prime city locations, which remained way below pre-coronavirus levels even when stores were open.
Like other fashion retailers that source mostly from Asia, Primark will benefit from the weaker dollar. At current rates, it would more than cancel out the expected impact of higher freight costs, according to Bason. ABF reiterated that Primark will barely break even on an adjusted operating profit basis in the period, having made GBP441m in the same period in the previous financial year.
In 2019, the last full year before the pandemic, it accounted for more than three-fifths of group operating profit. The conglomerate will also benefit from a strong performance in its non-retail divisions, with first-half revenue and profit in grocery, sugar, agriculture and ingredients businesses to be "ahead of both expectations and the first half of last year". ABF shares, which have rallied almost 50 per cent since last November, were little changed in early trade on Thursday.
Analysts at Barclays said they expected a strong profit recovery in 2022, driven by a return to more normal trading conditions at Primark, a weaker dollar and continued store expansion.