Associated British Foods PLC (LON:ABF), owner of the Primark clothing retail chain, has warned the coronavirus pandemic lockdown across many countries in Europe will have a material impact on its second-half numbers.
Even though Primark’s factories in China have now re-opened, the FTSE 100-listed group said its stores have been closed in France, Spain and Austria, which account for 20% of its selling space and 30% of its sales.
That area had been expected to generate £190mln in revenue over the next four weeks.
AB Foods also warned that its UK sales have tailed off markedly in the past two weeks, a trend that has accelerated over the past few days as a result of reduced footfall.
“We are managing the business appropriately but do not expect to significantly mitigate the effect of the contribution lost from these sales,” the company said in a statement.
The blue-chip conglomerate added, however, that there has not been a material impact on its sugar, grocery, ingredients and agriculture businesses, although given the uncertainty in retail, there is no guidance for the remainder of the year.
The statement gave an indication of just how fast businesses are being affected by the spread of the virus as AB Foods still noted that its results for the half-year to end February will come in ahead of forecasts due to better than expected trading at Primark and in grocery in that period.
Buying opportunity for ShoreCap
In a note to clients, Shore Capital analyst Darren Shirley commented: "Given the effect of COVID-19 on Primark's sales, we are not surprised that management states 'is too early to provide earnings guidance for the remainder of the current financial year', and in that respect we have to place our previous FY2020 EPS forecast of 144.3p under review."
"However, he added, "as we have written recently we believe some of the core strengths of the ABF business, notably a strong balance sheet, and substantial cash liquidity (£800m of net cash is reported in the end of H1) and significant undrawn bank facilities. Therefore (while) considerable uncertainty remain, we view ABF as high-quality business and the current market/share price weakness as an opportunity to acquire a stock you will want to own on a 3-5 year view. BUY."
In afternoon trading, shares in AB Foods were 8.7% lower at 1,675p.
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