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With sales on track to hit £2 billion by the end of the year, all the haters who have already written off the high street, might want to take a closer look at Primark-owner Associated British Foods (ABF).

Admittedly, when the world was in lockdown, Primark, the fast-fashion chain which has resolutely refused to jump on the online bandwagon, did look decidedly off trend. With every one of its 380 stores shuttered at one point and no way of getting its garments to customers, you did have to wonder whether it would eventually be forced to throw out its business model and join the rest of the retail sector online.

Even those photos of shoppers queuing round the block from 5am when re-opening day finally arrived, couldn’t quite dispel the idea that Primark was simply far too behind the trend and frankly far too reliant on footfall to make a success of 2020.

But it appears that was not the case. While ABF has today warned of a significant slump in annual earnings because of those forced stores closures, it is expected to generate adjusted operating profits at least at the top end of its previously-issued £300 million-to-£350 million guidance, following a strong showing in its fourth-quarter.

That guidance was previously £913 million, but that was before the pandemic took hold; the like of which no one could have anticipated. And it could have been far worse, as the 75% slump in sales in its third quarter showed.

Sales for the seven week period to 20 June at £322 million were 12% down on last year on a like-for-like basis, but not all stores were open on day one of that period. And today, while they have now all reopened, it was revealed that sales are still expected to be 12% lower on a like-for-like basis, with sales in Europe likely to be 17% lower.

Primark’s 16 largest stores across the UK which made up 13% of total pre-coronavirus sales, have only managed to get back to 8% since reopening. But that is far better than those dark days of late March and April, would have suggested, when every Primark store across the UK and Europe, was closed.

And things are picking up and continue to do so as the latest four-week UK market data for sales in all channels shows, with the “highest ever value and volume shares for this time of year”, according to ABF.

“Stronger than expected trading” has enabled the retailer to sell the majority of its summer stock and, as a result, the book value of Primark’s spring/summer 2021 inventory is now expected to be around £150 million – much lower than previous estimates.

Primark, the fast-fashion chain, has always been an anomaly in many ways. Sitting incongruously alongside ABF’s other sugar, ingredients and agriculture businesses, it has always seemed a strange fit for the minis-conglomerate. Yet, time and again it has been the fashion business that has held investors’ interest in ABF when sugar prices took a dive (thanks to the European sugar mountain) or its other businesses hit hard times.

When the pandemic struck and Primark stores closed, the lack of any sort of online presence made it stand out again - for all the wrong reasons. Luckily then for ABF investors the ingredients and food stuffs side of the business, made up the shortfall.

The apparent ‘mish mash’ of businesses that make up ABF and its seeming reluctance to ‘modernise’ what it does too much (notably refuse to sell its retail wares online) means it is bucking all sorts of trends, certainly when it is compared with other companies. And yet it is managing to do so successfully. Perhaps ABF is just best left to do what it does best - be both a rather more thought-through set of businesses than it looks at first glance and a prime example of the power of diversification in uncertain times.

More on ABF

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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