Primark may be hit with supply shortages if coronavirus outbreak drags

Primark owner Associated British Foods (ABF) has warned that there is a risk of supply shortages on some of the retailer’s lines later in the year if factory delays in China caused by the coronavirus outbreak are prolonged.

Primark, owned by AB Foods, has been one of the most successful chains on the UK high street in recent years. Picture: John Devlin

However, it said the high street giant, which sources numerous products from China, is “well stocked with cover for several months” and does not expect any “short-term impact” as a result of the virus.

ABF said it is assessing plans to mitigate the impact of coronavirus on Primark, including the possibility of increasing production from suppliers in other regions.

The FTSE 100 firm also said it has some food operations in China, with its AB Mauri, AB Agri and Ovaltine factories in the country operating at reduced capacity due to "labour and logistics constraints".

The warning came as ABF said half-year sales and operating profit growth are both expected to surpass expectations following strong sales at the high street retailer.

The group said Primark sales in the first half of the financial year are 4.2 per cent higher than the same period last year, as it was boosted by recent site expansions.

On track

The group said it was on track to post full-year figures in line with expectations, on the back of strong group sales and profits for the half year to 29 February.

Associated British Foods said Primark's UK sales are expected to have risen 3 per cent against last year following store expansions and openings. Meanwhile, like-for-like sales are expected to have dropped 1.3% over the half-year period.

The firm said UK sales were "particularly good" in November and December but have "weakened" in January and February.

Elsewhere, ABF said revenues in its sugar business are expected to improve on last year due to higher EU sugar prices and increased export sales.

The firm's grocery business has seen revenues in line with expectations, while profits have improved against last year, as the firm benefited from reduced losses in its troubled Allied Bakeries business, which produces Kingsmill bread.

It said its Twinings tea business has seen higher sales than last year, driven by growth across both black tea and herbal tea.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "There’s concern the coronavirus could disrupt Primark’s supply chains, because Primark sources a broad range of its products from China.

"The good news is the group has existing suppliers in other regions, which could be called on to plug any holes in the production line. It also builds stock in the lead up to Chinese New Year, meaning it has extra inventory to fall back on for now. The net effect is Primark is well placed to handle near-term disruptions, but it’s one to keep an eye on.

"Overall, Primark continues to buck the bleak high street trend. Coronavirus is a potential headwind, but as a dynamic situation it’s too early to say how things will turn out."