Primark to lose £1 billion of sales amid lockdown and warns it could get much worse
The budget fashion chain, which is owned by Associated British Foods (AB Foods), said 305 of its 389 shops around the world are currently shut, which is expected to cost it £1.05bn in lost sales – up from the £650 million hit forecast at the end of December.
It warned of the sales hit if the lockdowns force its stores to stay closed until the end of February.
AB Foods, which has 190 Primark shops in the UK, said it now expects to see half-year underlying earnings wiped out, with the group forecasting to be “broadly break-even” against profits of £441m a year earlier.
But it said it could be facing a £1.85bn sales impact if its entire store estate has to close and remain shut until the end of March, knocking profits by a further £300m.
Primark has already seen £540m in lost retail sales from store closures due to Covid restrictions in its key Christmas quarter, with sales tumbling 30 per cent in the 16 weeks to January 2.
The firm said it has been able to offset some of the trading impact with overhead costs cut by a quarter due to the store closures.
The company warned investors: “The impact of store closures on Primark’s performance is significant. We now expect full-year sales and adjusted operating profit for Primark to be somewhat lower than last year.”
The group said trading was strong while stores were open. Branches at retail parks accessible by car lifted on a year earlier, but high street and shopping centre sites were impacted by the pandemic.
Despite the woes, it opened another five shops over its festive quarter and pledged to “continue to expand retail selling space”.
Susannah Streeter, senior investment and markets analyst at financial services group Hargreaves Lansdown, said: “Primark used to be the jewel in the crown for Associated British Foods, but it’s now more like a thorn in its side with the lockdown closures now expected to create a gaping hole in revenues.
“While the grocer Tesco stacked up an extra one billion in sales due to a surge in demand, by contrast, Primark now expects revenues to fall by one billion pounds. That’s significantly worse than its forecasts at the start of the year when it predicted sales would fall by £650m.
“Primark can’t offset store closures with digital sales because it doesn’t have an e-commerce arm to fall back on.”
She added: “In many ways Primark has been resting on its laurels and its huge fan base of shoppers, hooked into its social media channels, who have flocked back through the doors when restrictions have eased. But the fresh spike of infection rates, caused by the new infectious strain, have brought a whole new level of uncertainty.”