Primark’s inability to trade online during coronavirus lockdowns has prompted a 40% slump in its parent firm’s annual profits.
Associated British Foods (ABF) said enforced closures of the discount fashion retailer’s stores lost it an estimated £2bn in revenue and outweighed increases to its bottom line from its sugar, grocery, agriculture and ingredients divisions in the year to 12 September.
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It left statutory profit before tax at £686m for the period as adjusted profits at Primark fell 63% to £362m.
COVID-19 costs took a toll as the chain’s revenue took a 24% hit – recovering some ground in the final quarter of the period as shops across Europe emerged from hibernation in the summer to find strong demand.
ABF said it was forecasting improved sales for Primark in its current financial year as it did not foresee a similar level of disruption caused by coronavirus despite a second wave of lockdowns in key markets.
The group issued a statement on Monday to warn of a likely £375m hit from lost sales.
It revealed that 57% of its entire store estate was set to be temporarily closed once England enters lockdown on Thursday for a month – a crucial time for sales in the run-up to Christmas.
The company told the PA news agency it was looking at extensions to opening hours once shops are allowed to reopen in a bid to help recover some of the damage.
ABF has doggedly refused to trade Primark online – committing to the stance even at the height of the pandemic in the spring – despite evidence that online retailers have been reaping benefits from shuttered high streets and a reluctance among shoppers to venture out.
The company’s food boss George Weston stuck to its commitment on Tuesday, arguing that £2bn of post-lockdown sales showed that customers preferred to shop with Primark rather than take a punt on products they couldn’t physically see in the digital sphere.
While the virus crisis has slowed Primark’s expansion plans, the company said it was on track to open 14 more stores across its key European markets during the year to September.
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The company said of Primark’s performance: “We estimate that sales were some £2bn lower as a result of COVID-19.
“The reduction in operating profit from £969m to £362m was driven by the loss of contribution arising from the sales shortfall, partially offset by the benefits of mitigating actions taken to reduce operating costs.”
The company made use of European government furlough schemes while shops were closed and said rates relief had also eased pressure on the business during the crisis to date.
ABF shares – down 34% in the year to date – opened 1.5% down in early trading on Tuesday but later recovered to end 0.3% higher.
Commenting on the performance Chris Daly, chief executive of the Chartered Institute of Marketing, said: “At a huge disadvantage to most of its competitors, due to its lack of an online sales operation, Primark’s strong sales since it reopened stores in May reflect the remarkable customer loyalty the brand has built up in recent years.
“Getting customers into bricks and mortar stores is no mean feat and the rest of the high street should take some encouragement from Primark’s ability to generate footfall.
“Despite this relative success… (Primark) will be hoping consumers don’t use the lockdown period to get their Christmas shopping done online.”