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AB Foods upbeat on Primark’s future despite closures

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Associated British Foods PLC (LON:ABF) has said it expects clothing chain Primark’s full-year sales and profit to be higher next year in spite of the coronavirus (COVID-19) pandemic lockdown closures.

In a trading update, the FTSE 100-listed conglomerate said there will be a sales decline at Primark in the first half compared to last year, reflecting the period of store closures in the third quarter of this financial year, but it still expects higher sales in the second half as the fast-fashion retailer will continue to expand retail selling space.

READ: AB Foods expects £375mln cash burn from Primark temporary closures

On Monday, AB Foods had warned that Primark was going to have 57% of its selling space closed by Thursday after the new UK lockdown comes into force, with a cash burn for the period expected of £375mln.

In the other divisions of the conglomerate, the company said Sugar is expected to deliver a higher profit next year with improvements in Europe and in the performance of South African producer Illovo.

In the year to September 12, 2020, AB Foods’ revenue fell by12% to £13bn while profit before tax dropped 40% to £686mln, both impacted by the loss of sales when Primark stores were closed during lockdowns.

The clothing retailer is expected to have lost £2bn of sales and some £650mln of profit as a result of COVID-19.

Conversely, the group’s Grocery, Sugar, Ingredients and Agriculture divisions combined delivered a 26% jump in adjusted operating profit with growth in all business segments.

Grocery delivered a year of strong profit and margin improvement, including higher retail sales in the second half which more than offset a decline in foodservice as a result of COVID-19.

A significant improvement in the profits of the group’s European and Chinese sugar businesses more than offset a disappointing result for Illovo, AB Foods said.

The improvement in Ingredients was driven by substantially higher demand for AB Mauri’s yeast and bakery ingredients, it added.

The firm has decided not to propose a final dividend to see how the key Christmas season plays out for Primark.

‘’The pandemic has meant sales at Primark owner ABF have swung like a yo-yo this year, but ultimately its fashionable, low-cost model kept customers loyal, and the tills ringing since stores reopened,” analysts at Hargreaves Lansdown commented.

“Resilience is still very much the name of the game at ABF, with a strong performance in the face of adversity. But given store closures are once again going to cause a big headache for the group, there will be some questions about Primark’s stubbornness to develop its online sales business to offset the loss of revenues on the high street.”

“However, Primark will continue to showcase its styles through its website and social media, so expect queues of fashion-savvy shoppers to build up again once the stores re-open. ’’

Shares dipped 1% to 1,700p on Tuesday morning.

–Adds analyst comment, shares–

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