Associated British Foods PLC’s (LON:ABF) fast fashion chain Primark could see profits tank by 40% if stores close for three months, some analysts have warned.
After stores in France and Spain were shut due to government lockdowns, a scenario where the UK government also enforces quarantines for three months could result in sales falling 20% and profits plummeting 20%.
READ: Primark hit hard by shut down in Europe with UK sales now faltering
Management of the FTSE 100 group said one month of closures would hit Primark's full-year sales by around 2%.
Closures so far in continental Europe represent stores that contributed around 30% of Primark's sales last year, but more may follow suit if a lockdown is imposed in the UK.
In 2018, Primark’s sales and profit made up 48% and 58% of the group’s total, respectively.
Analysts at UBS estimated some positive impact in the grocery business given the product mix, although it would be a “small” offset.
However, the investment bank is sanguine about ABF’s potential to protect group profit and cash thanks to its conglomerate structure.
Net cash is expected to sit at £800mln at 29 February half-year stage, while at the end of the financial year the analysts expect a “small” net debt position.
Shock share collapse
Shares were trading 11% lower at 1,637.87p on Monday in the early afternoon, after a freak 100% collapse in the mid-morning trading.
It was said to have been a technical glitch.
Airlines: "We're collapsing"
Primark-owner AB Food: "Hold my beer" pic.twitter.com/5unKELWMpA
— August Graham (@AugustGraham) March 16, 2020
All transactions carried out when the share price was at this anomalous 0.01p level were not processed.