Shares in Associated British Foods (ABF) firmed 0.7% to £24.55 as the diversified foods-to-fashion conglomerate reported a resilient first half performance from Primark for the periods when its shops were open, as well as forecast-beating showings from its grocery, sugar, agriculture and ingredients businesses.
However, the FTSE 100 firm also warned that store closures have cost its Primark business an estimated £1.1 billion in lost sales, meaning the discount clothing chain’s first half revenue will be in the region of £2.2 billion, down from £3.7 billion year-on-year.
And due to the restrictions placed on Primark, group sales and adjusted earnings per share are expected to be lower year-on-year.
£1.1BILLION OF LOST SALES
During the half to 27 February 2021, cut-price clothing chain Primark was ‘materially impacted’ by Covid restrictions in the UK and Europe with the bulk of its stores shuttered during November and from the end of December.
As a result, Associated British Foods estimates the loss of sales in the periods of store closures amounted to some £1.1 billion; Primark will deliver an adjusted operating profit of ‘marginally above break-even’ for the half, down from last year’s £441 million profit.
‘When stores were open demand was strong and trading was encouraging, given the circumstances,’ stressed Associated British Foods, also striking an optimistic note with regards to the reopening of stores deemed non-essential this coming April.
REOPENING BOOM AHEAD?
Associated British Foods currently has likely reopening dates for 233 stores in addition to the 77 stores already open, which means 83% of its retail selling space should be trading by 26 April.
‘Our stores will be offering exciting seasonal ranges for spring/summer and we have been placing orders for merchandise with a long lead time for the autumn/winter season,’ said the group, which expects the post-reopening period to be ‘highly cash generative’.
Highlighting the merits of its diversified conglomerate structure, Associated British Foods now expects sales and profits in each of its grocery, sugar, agriculture and Ingredients businesses to be ahead of both expectation and the first half of last year.
THE EXPERTS’ VIEW
Following today’s solid update, Shore Capital placed its forecast under ‘modest review’, though the broker remains ‘positive on Associated British Foods for the medium to long-term with the potent Primark format well positioned to take share across most of markets, and building positive momentum across its food activities.’
AJ Bell investment director Russ Mould said that while Associated British Foods has ‘stood out like a sore thumb in the retail sector’ for refusing to sell its clothes online due to concerns about the economics, ‘one cannot fault the business for also sticking to its guns and maintaining a conglomerate status when so many people said there were merits to spinning off Primark.
‘During the pandemic it has enjoyed diverse sources of revenue which have helped prop up the business when one part has been struck by significant operating challenges.
‘The important point to note in its latest update and in previous ones is that consumers are quick to return to Primark shops as soon as lockdown measures are lifted.
‘More than four fifths of its retail selling space should be trading by late April, meaning the company must only get through two more difficult months before it can start to bring Primark back to full health.’
