Shares in Associated British Foods (ABF), owner of fashion retailer Primark, plunged 12.5% to £16.05 in early trading after the company closed stores in Austria, France and Spain in accordance with government shutdown rules.
Importantly, the company does not anticipate being able to offset any lost sales.
In a trading update for the six months to 24 February, the firm said that the overseas stores - which account for 20% of Primark’s selling space and 30% of sales - had been expected to generate £190m in revenues over the next four weeks.
UK SALES SLOWING
In addition it cautioned that the remainder of its stores, including the UK which makes up 41% of sales, had 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.’
It added that ‘we are managing the business appropriately but do not expect to significantly mitigate the effect of the contribution lost from these sales.’
The latest figures from the British Retail Consortium showed a 2% drop in footfall, or the number of people visiting stores, during February.
As well as the coronavirus outbreak, retailers had to contend with three named storms all of which hit the UK at weekends when stores would have been busiest.
There was a ‘slight boost’ at the end of the month, according to the BRC, although this was felt more by the supermarkets as customers began stockpiling food and hygiene products.
FIRST HALF EARNINGS BEAT
There was some positive news in the trading update, namely that first half operating profit would be ahead of expectations due to higher margins for Primark and grocery.
Encouragingly, the firm has so far seen ‘no material impact’ in its sugar, grocery, ingredients or agriculture businesses. It also pointed out that most of the clothing factories in China which supply Primark have re-opened and that it expected supply shortages to be ‘minimal’.
Finance Director John Bason said it was still too early to provide earnings guidance for the rest of the financial year, but he highlighted the fact that the group has a strong balance sheet, ‘substantial liquidity’ with £800m of net cash at the half-year stage, and significant undrawn bank facilities.
Analyst Darren Shirley at Shore Capital said that despite the current uncertainty, ‘we view ABF (and Primark) as high-quality businesses that will be well very positioned to drive sustained growth once the challenges of coronavirus are worked through.’
