LONDON (ShareCast) - (Sharecast News) - Associated British Foods said it expected a two-third slump in annual profits at its Primark unit as it felt the impact of closures during the coronavirus pandemic.
All 375 Primark stores closed in a 12-day period to 22 March resulting in a monthly sales loss of £650m per month, ABF said on Thursday. Revenue at its retail division was down 75% to £582m in the third quarter. This was slightly offset by positive trading at the firm's grocery business, which saw turnover rise by 9% in the three months.

AB Foods said cumulative sales for the seven weeks to June 20 were £322m, down 12% on a like-for-like basis after stores started reopening on May 4.

Sales in the week to June 20 were £133m with 90% of selling space available. Trading in England and Ireland was ahead of the same week last year.

It expected full year adjusted operating profit for Primark, excluding exceptional charges, to £300m - £350m compared to £913m reported for the last financial year.

Nearly all the budget stores had now reopened after lockdown measures eased across its markets. Primark halted orders as soon as lockdown was enforced, and halved costs as a result. It said it had paid or was committed to paying for garments finished or in transit at the time.

More than £800m in orders has been placed for the new autumn/winter range, with expectations that this could exceed £1bn, the group said.

Overall group revenue from continuing businesses for the 40 weeks to June 20 was 13% lower than the same period last year at constant currency. The company said it expected to make "strong" progress in adjusted operating profit at its sugar, grocery, agriculture and ingredients businesses.

"After the cash outflow in the third quarter, we expect the group to return to cash generation in the final quarter. With Primark trading again, our current expectation is that the year end net cash balance, before lease liabilities, will be in excess of £750m," AB Foods said.

Interactive Investor head of markets Ricard Hunter said AB Foods diversified business model had taken some of the sting out of the pandemic's impact, with the grocery, sugar and ingredients businesses all making progress.

"This has fed through to operating profits which were ahead of the company's own expectations for grocery, agriculture and ingredients, with a material profit improvement in sugar, driven by higher EU sugar prices," he said.

However, he warned that the retailer was already seeing signs of difficulty at its big city stores, where tourists remain absent, "although much of this slack is being taken up by its regional stores".

"In addition, there is a question mark over sales momentum, and whether the initial euphoria of renewed retail therapy will continue amid a period of economic recession and a potentially slow recovery."

"Yet AB Foods remains a well-regarded stock, with Primark being a key engine to growth and the market consensus of the shares as a buy should remain in place following the relief of the immediate outlook."

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