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Primark is expected to be looking at losses topping £1 billion when its owner Associated British Foods (ABF) posts half-year results on Thursday. The fast fashion chain, which has bucked the trend and steadfastly refused to sell online, by its own estimation expects sales to have fallen by £1.05 billion. It had previously - optimistically - hoped shops would have reopened by now and losses would have been closer to £650 million.
With three-quarters of its stores shut across Europe and sales down 14% at those shops that could open, revenue at Primark was down 30% in the first quarter of its financial year, with an estimated fall in turnover of £540 million in the 16 weeks to 2 January.
Primark says it expects to “broadly break even” in the first half, compared with an adjusted operating profit of £441 million for the same period last year. But it has said that given a worst-case scenario of all stores being closed until Easter, there would be a further £300 million hit to its full-year profit.
Primark’s situation is in sharp contrast to that of its online rivals and despite the company’s insistence that it is not going to shift to online sales, with the pandemic ongoing and, as yet, no reopening date for all non-essential retail, you have to wonder whether Primark is eventually - or even already even privately - going to regret its refusal to join the online fashion pack.
Primark is insistent that once stores reopen shoppers will flock to its stores. When the first and second lockdowns were eased customers did happily queue round the block to get their fast-fashion fix from their nearest Primark from opening day. So maybe expanding its retail selling space, so there are more shops is the way forward. But there is also growing evidence that shoppers’ habits have already started changing - and possibly permanently.
Ocado has said the shift to online grocery shopping will remain in place once the pandemic is over. You could argue that it would say that, but time will tell. The respective fates of Card Factory and Moonpig could very well be another example of a potentially permanent shift in shopping trends. Moonpig expected to float soon, with a valuation of more than £1 billion, says sales have more than doubled in six months; while Card Factory has warned that full-year sales would be down by a third, resulting in a loss of £10 million.
Of course, AB Foods is about more than just discount clothing. While Primark steals all the headlines, the mini-conglomerate also has grocery, sugar, agriculture and ingredients businesses that are trading better than expected. And perhaps even more importantly, about £500 million of cash in the bank to help it ride out the problems affecting its main profit generator.
AB Foods is sticking to its guns and sticking fast to the belief that business at Primark will boom once lockdown ends. The nation’s teenagers and 20-somethings with many more months now of pent-up need for bargain-priced clothes and with Primark gift cards burning a hole in their pockets, could very well prove them right.
More on Associated British Foods
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