Primark owner shares surge as traders welcome ‘encouraging’ reopening
Shares in Primark owner ABF jumped 4.5 per cent this morning after the firm issued a positive trading update over its chances of bouncing back from the coronavirus pandemic.
Although group revenue at Associated British Foods (ABF) dropped 39 per cent in the third quarter, led by a collapse in sales at high street fashion chain Primark, the firm said that since reopening most of its stores trading had been “reassuring and encouraging”.
AJ Bell investment director Russ Mould said: “The recovery from the pandemic was never going to be easy for businesses, yet AB Foods’ update would suggest it stands a good chance of bouncing back”.
The figures
In total, group revenue in the third quarter slipped to £2.6bn, while across the year to date it fell 13 per cent to £10.2bn.
Although revenues in ABF’s ingredients, grocery, sugar and agriculture divisions were in line with the same period last year, the closure of all 375 of Primark’s stores blew a hole in the firm’s finances.
Across the 12 weeks of lockdown, Primark was forced to close all of its stores, resulting in a loss of £650m worth of sales every month.
The fast fashion firm managed to reduce its operating expenses by over 50 per cent and this limited the cash outflow to some £100m per month while the stores remained closed, ABF said.
Across the whole year, ABF said that it expected operating profit at Primark to be two-thirds lower at £300 – £350m, compared to £913m last year.
Emma-Lou Montgomery of Fidelity Personal Investing said the shortfall was no surprise.
“The absence of an online shopping site didn’t help and will have held it back when compared to its competitors, costing it £650m in sales every month of closure”, she said.
“But as we have seen, with queues forming from 5am on reopening day – open the stores and shoppers will come”.
Grocery was a strong performer for ABF, with revenues rising nine per cent to £941m as people bought more goods for consumption at home.
Revenue from sugar dropped one per cent, but the firm said profit for the year would be far ahead of the previous year.
A surge in demand from both industrial and private bakers sent revenue from the ingredients division up three per cent to £385m.
Why it’s interesting
Primark has now reopened 367 of its stores around the world, with the remaining eight expected to follow soon.
Since reopening, it said that trading had been “reassuring and encouraging”, with particular demand for children’s clothing, leisure wear and nightwear.
In the week ending 20 June, with 90 per cent of stores open sales hit £133m, driven by England and Ireland, where trading was better than in the same period last year.
It has also managed to continue with its new store opening programme, despite delays caused by the coronavirus.
Five new stores have been opened in the period, including a space at the Trafford Centre in Manchester.
Nicholas Hyett of Hargeaves Lansdown said that there was “a lot to like” in the latest results.
“Yes Primark sales are down dramatically in the third quarter, but trading in the first few weeks of June looks very promising and with almost all stores now open that provides a strong base for recovery”, he said.
“Meanwhile the group’s food focussed operations have not only benefitted from consumers being stuck at home but have also delivered margin improvements – doubly good news for profits.
“The fact Primark has been able to return to sales without significant discounting is encouraging in our view, but while we see the recent performance as strongly positive there’s still a long way to go”, he added.