Primark-owner hit by third lockdown

Kumutha Ramanathan
·Contributor
·2-min read
Signage is displayed outside a Primark store at the Oxford Street, in London, Britain July 2, 2020. REUTERS/Hannah McKay
The Primark store on Oxford Street in London is seen. (Credit: Hannah McKay/Reuters)

Primark-owner Associated British Foods (ABF.L) has seen its shares topple as the fast fashion retailer said lockdowns led to an estimated £650m ($897.50m) hit to sales, aggravated by the UK’s recently-announced third lockdown further undermining a business that lacks a digital sales presence.

Shares were trading lower by 2.8% at around midday in London.

ABF shares sunk following news that Primark is expecting a major drop in sales as it has no online digital presence. Chart: Yahoo Finance
ABF shares sunk following news that Primark is expecting a major drop in sales as it has no online digital presence. Chart: Yahoo Finance

Associated British Foods (ABF.L) shared a COVID-19 updated on 31 December, which said it anticipated the fall in sales for the business due to the pandemic would be even steeper than the initial projection of £430m.

253 Primark stores will be temporarily closed, representing 64% of its total retail selling space, with the announced periods of closure varying by each market.

READ MORE: Paperchase set to fall into administration as retail carnage continues

On Monday, the UK government announced further lockdowns. England’s enhanced restrictions will last until at least mid-February with Scotland’s being reviewed at the end of January.

Primark’s financial strains can be contrasted to its retail peer Next (NXT.L), which reported strong online sales on Tuesday that bridged the physical retail divide it faced as COVID-19 restrictions mounted.

“The contrast between the share price performance of Next and Associated British Foods could hardly be more stark,” said Russ Mould, investment director at AJ Bell.

“Next’s shares are up strongly after the company’s fourth profit forecast upgrade for its fiscal year, as a reflection of good cost control, lower product returns and above all stronger-than-expected sales, thanks to its strong online offering.

“AB Foods’ Primark fast fashion business lacks a digital presence and as such the retailer will take a much bigger hit from lockdowns in the UK and its core overseas markets.”

READ MORE: FTSE 250 picks up steam as UK chancellor announces £4.6bn in business aid

The outlook for Associated British Food also remains bleak, said analysts.

“[The latest UK lockdowns] will definitely affect sales in Q1 for [Primark-owned Associated British Foods],” said Neil Wilson, chief market analyst at MarketsDotCom. “Underlined by the fact Next has done so well only because it has brilliantly pivoted to online growth.”

Prior to Christmas, Primark had opened some of its stores in Tier 3 and Tier 2 areas throughout the night to maximise sales exposure. Earlier in December, the budget fashion brand said it had recovered 25% of its overhead costs during the autumn lockdowns in the face of a steep drop in sales.

Watch: Rishi Sunak offers £4.6bn lifeline for high streets