London-based retailers Associated British Foods (LON:ABF) has warned that it expects to lose £1.05bn if Primark stores are not allowed to reopen before the end of the financial half-year next month. Currently 305 stores are closed, representing 76% of ABF’s retail selling space.
On Thursday the company released a trading update for the 16 weeks up to 2 January 2021, estimating a 30% drop in total retail sales due to widespread store closures costing the brand around £540m, although ABF did state that “trading was strong given the circumstances”.
Primark’s performance was “materially impacted” by the reimplementation of lockdown restrictions put in place by UK and European governments and the subsequent loss of high street activity – particularly during November and late December – to limit the spread of COVID-19. Overall, sales were 30% lower than last year at constant currency and 28% lower at actual exchange rates.
As a result, ABF announced that its adjusted operating profit for Primark in the first half is forecast to broadly break-even – a stark turnaround compared to £441m for the same period last year – while the group’s net cash before lease liabilities is expected to come in around £500m.
The FTSE 100 company said that it will “partially mitigate” the loss of sales by obtaining savings of 25% of the operating costs of those stores that are currently closed, but warned that ongoing closures could cost a further loss of Primark sales amounting to £800m – with a consequent £300m slash to profits – taking overall costs to an eye-watering £1.05bn.
Shares at ABF dipped slightly on the company’s announcement, down 0.072% to 2,219.40p at GMT 09:44 on Thursday, following a turbulent year which has seen the stock tick down -13.75% over the past 12 months. Festive sales did boost shares +28.38% over the holiday period, but the January lockdown has understandably put a dampener on matters, sending the value down -2.76% once again.
AB Foods currently has a consensus rating on Marketbeat of “buy”, with an average rating score of 2.67 out of 5, based on 10 “buy” ratings, 5 “hold” ratings, and no “sell” ratings.