Associated British Foods PLC (LON:ABF) said there was an £800mln cash outflow from its Primark retail business during the coronavirus lockdown but with all but eight stores now open, sales in the past week were up on last year.
For the third quarter to June 20, 2020, as a whole the FTSE 100-listed group reported revenue of £2.6bn, down 39% on the same period last year, with a 75% decline for Primark and 1% dip for sugar offset by 9% growth for grocery foods and a 3% gain for ingredients.
For the 40 weeks of its financial year to date, AB Foods' revenues were £10.25bn, down 13% from a year ago.
The reopening process for Primark, which began in Austria in early May and until the reclosure of two in Leicester stores this week saw 367 stores trading, resulted in sales of £322mln for the seven-week period to June 20, down 12% on a like-for-like basis.
For the last week of the quarter, with over 90% of Primark selling space reopened, sales reached £133mln, with trading in England and Ireland ahead of the same week last year.
Stores in big city centres are suffering from the absence of tourism and much lower commuter footfall, the group said, while the main demand has been for children’s, leisure, nightwear and summer products such as shorts and t-shirts, with “unsurprisingly weak demand for formal menswear and travel accessories”, but it has placed orders worth over £800mln for the autumn/winter season and expects the total for the coming season to exceed £1bn.
Meanwhile, ABF's food production businesses generated cash of £300mln across the whole quarter and with the group as a whole expected to return to cash generation in the final quarter, management said they year-end net cash balance is seen topping £750mln.
For the full year, the board expect “strong progress” for underlying profits on the food side, with profit for Primark around £300-350mln, excluding exceptional charges, compared to £913mln in the last financial year.
Shares in AB Foods rose more than 7% on Thursday to 2,112.29p, but are still down 18% since the start of the year.
Richard Hunter, head of markets at Interactive Investor, said: “AB Foods will be greatly relieved to have its jewel in the crown restored and the very early signs are that Primark is picking up largely where it left off.
“The diversity of the AB Foods business model has taken some of the sting out of the effects of the pandemic. In particular, the Grocery unit, previously responsible for 28% of operating profit, saw an increase in revenues in the third quarter of 9%.”
He added that the pandemic has “left a financial stain which cannot be erased from this year’s trading”, with full-year profits down on last year and “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”.
Analysts at broker Liberum Capital said: “We think this is a relatively credible result showing the strength of the Primark brand with consumers. The savings in rent negotiations could help permanently lower the operating costs going forward, and the closures of stores by other operators could throw open.”
Nicholas Hyett at Hargreaves Lansdown said management's profit guidance for Primark this year would be a good result.
“The fact Primark has been able to return to sales without significant discounting is encouraging in our view, but while we see the recent performance as strongly positive there’s still a long way to go.
“A low price point might provide some insulation against a major economic downturn, but we still worry about the state of the global economy and what that could mean for all retailers over the medium term. Given those concerns ABF’s substantial cash pile is very welcome.”
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