Primark expects its profits to drop by two-thirds this financial year as a result of the coronavirus outbreak, its owner Associated British Foods (ABF) said on Thursday. The clothing retailer’s revenues fell by 75% – or £800m – between 1 March and 20 June. Lockdowns have hit Primark particularly hard because it does not sell its products online. The company reports “reassuring and encouraging” trading since reopening most of its 375 stores, though its city centre locations still suffer from a lack of tourists and commuters.
In equity markets, Associated British Foods was the top performer on the FTSE 100 despite forecasting that full-year adjusted operating profit for Primark will decline from £913m to between £300m and £350m due to the impact of the coronavirus pandemic, as it also said trading at its reopened stores "has in aggregate been reassuring and encouraging".
Richard Hunter, head of markets at Interactive Investor, said: "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%, leading to a cumulative increase for the year of 3%.
"Meanwhile, the sugar and ingredients businesses also posted progress, with a slight decline at the smaller agriculture unit. This has fed through to operating profits which were ahead of the company’s own expectations for grocery, agriculture and ingredients, with a material profit improvement in sugar, driven by higher EU sugar prices."
Amidst the retail gloom, an encouraging update from Primark, only -12% lfl since reopening.
Is this a trend or the result of pent-up demand? Time will tell...
With the UK consumer facing economic uncertainty will Primark perform better than their mid market rivals, even without E-commerce?
In the current anxiety-fuelled consumer landscape the uncomfortable fact is a queue stretching outside of the Liverpool branch of Primark has fast become a lightning rod for fear surrounding a potential second wave of Coronavirus. In the midst of this continued uncertainty and consumer anxiety, celebratory reopening marketing campaigns would fail to hit the right tone. Yet there is no question that marketing has a huge role to play both in reassuring consumers of the extra safety measures that retailers are making and in reminding them of the return of those every day retail rituals we took for granted.