Parent company Associated British Foods (ABF) said it expects to take a further £480 million hit to sales in the second half of its financial year – March to August – but expects a rebound once stores can reopen and pent-up demand is met.
The company added that, despite the heavy falls, sales at Primark in the six months to February 27 are still expected to come in at £2.2bn, as some stores remain open overseas and taking into account sales periods before the new restrictions were introduced. Primark is reliant on in-store sales without a major online presence.
Just 77 stores are currently open – representing just over a fifth of total store selling space – primarily in the US.
Bosses said they expect to be “highly cash-generative” when stores can finally reopen, with 83 per cent of floor space able to welcome customers towards the end of April, based on current estimates and government announcements in different countries.
ABF said it has saved money through cost-cutting measures to mitigate the falling sales and still has spring and summer stock from a year ago that could not be sold due to the pandemic, which will go into stores when they reopen.
Later in the year, stores will also be able to rely on the autumn and winter collections from last year.
Sophie Lund-Yates, equity analyst at financial services firm Hargreaves Lansdown, said: “The re-closure of the Primark estate is costing a pretty penny, with lost revenues expected to cross the grim £1bn milestone.
“However, the retail chain is a force to be reckoned with. When previous lockdowns ended we saw demand rebounded strongly.
“Like-for-like sales were down 15 per cent in the last round of reopening, which sounds bad on paper. In reality that’s an impressive recovery when you consider people had little reason to visit the high street, and Primark’s lack of online business.
“Even more importantly, so strong is the demand for Primark’s clothes, excess inventory has been less of a problem during the pandemic, because more of it flies off the shelf than expected once the doors open. That helps protect profits and cash.”
ABF added that it expects adjusted operating profit for Primark in the first half to be marginally above break-even, compared with an adjusted operating profit of £441m for the same period in the last financial year.
The group’s other divisions in grocery, sugar, agriculture and ingredients are expected to see revenues and profits ahead of expectations.
Freetrade analyst David Kimberley noted: “Today’s update doesn’t offer much in the way of surprises. We knew Primark was going to take a beating during lockdown but that there would be opportunities for ABF’s food and drink divisions to outperform.
“With a timetable out of the pandemic now on the cards, it’s easy to see why some investors have been eager to buy into the group over the past month.”