Coronavirus: Primark says supplies from China getting back on track but warns over Europe store closures

Primark owner Associated British Foods (ABF) said supplies of products from factories in China were getting back to normal but warned of the impact on its business from the closure of large parts of its European store network.

Primark, owned by AB Foods, has been one of the most successful chains on the UK high street in recent years, and has a large network of stores including this one in Glasgow. Picture: John Devlin

The company issued an unscheduled trading update given the “rapidly changing developments regarding Covid-19”. It follows a statement to investors just weeks ago when it warned that there was a risk of supply shortages on some of Primark’s lines if factory delays in China caused by the coronavirus outbreak were prolonged.

In its latest bulletin, ABF noted: “In our February trading statement we described the risk to supply of goods from our suppliers in China. Since then, the situation in China has improved, with most factories supplying Primark having re-opened. As a result, supply shortages from that country are now expected to be minimal.”

But the group added: “However, with developments over the last week in Italy and, more materially, over the weekend in France, Spain and Austria, stores accounting for 20 per cent of Primark’s selling space are now closed until the respective governments permit them to re-open.

“These stores currently generate 30 per cent of Primark’s sales. From the date of this announcement, we had expected sales of £190 million from these stores over the next four weeks.

“The remainder of the estate, including the UK which represents 41 per cent of sales, has seen like-for-like sales declines over the last two weeks and these have accelerated over the past few days as a result of reduced footfall.

“We are managing the business appropriately but do not expect to significantly mitigate the effect of the contribution lost from these sales.”

The firm said that given the effect of the virus crisis on Primark’s sales, it was too early to provide earnings guidance for the remainder of the current financial year.

ABF stressed that it had a strong balance sheet, “substantial” cash liquidity with some £800m of net cash at the half year and significant undrawn bank facilities. It also noted that, in aggregate, it had not seen a material impact in its sugar, grocery, ingredients and agriculture businesses.

For the first half, adjusted operating profit is set to be ahead of the group’s previous expectations, mainly due to higher margins for Primark and grocery. As a result, adjusted earnings per share for the first half will now be ahead of last year on both a lease-adjusted and a reported basis.

The group is scheduled to provide a further update alongside its interim results on 21 April.