Discount retailer Primark, which was expected to clear £1bn of annual profits for the first time this year, said the actual figure would be about a third of that level after the UK lockdown forced it to shut its stores.
Shoppers queued around the block to get into Primark stores when they reopened on June 15. But in a statement that might exacerbate concerns about the health of less successful retailers, Primark’s owner Associated British Foods revealed the lockdown had cost its fashion-to-homewares chain more than £600m in lost earnings.
Primark also suffered a cash outflow of £800m, as it continued to pay its suppliers while its UK stores were not trading. Lost revenues amounted to £650m a month.
“Absent a significant number of further store closures, adjusted operating profit for Primark . . . will be in the range £300m-350m for the full year compared to £913m reported for the last financial year,” ABF said.
The new forecast is generally ahead of an unusually wide range of analysts’ expectations, which were mostly below £300m.
Since reopening 367 out of the group’s 375 stores in the UK, Europe and the US, ABF said Primark’s trading was “reassuring and encouraging.” Demand was predictably high for childrenswear and summer clothing, with little appetite for formalwear and travel goods.
Same-store sales over the seven weeks to June 20 for those stores that had reopened were down 12 per cent, although sales in the week that lockdown measures were relaxed in England came in ahead of the same week last year as fashion-starved customers queued outside stores.
The company said it had “mostly” paid UK rents for the six months from March to September, with adjustments negotiated to reflect the period when stores were unable to trade.
It had also paid suppliers for goods that were in production or in transit at the time its stores closed, but had cancelled orders with a scheduled handover date after April 17. It had since placed orders for more than £800m worth of autumn and winter ranges.
For ABF, which owns sugar and agricultural businesses and household brands including Dorset Cereals and Twinings teas, the performance of Primark was somewhat offset by better trading elsewhere in the group.
The non-Primark divisions delivered £300m of cash into the business in the 12 weeks from March 1 to May 23, the group said.
The sharply lower profit from Primark, almost half of whose store estate is in the UK, means that AB Foods’ effective group tax rate will be closer to 30 per cent rather than the UK’s 22 per cent rate.