Primark’s store-only, no-web business model isn’t working out well for bottom-line results.
On Thursday, parent company Associated British Foods (ABF) said the fashion chain’s first-half results will fare poorly amid coronavirus-lockdowns and store closures across the U.K. and European markets.
For the first-half period ending on Feb. 27, ABF expects losses to reach roughly 1.1 billion pounds ($1.56 billion), with sales of about 2.2 billion pounds ($3.11 billion), down from 3.7 billion pounds ($5.23 billion) in the year-ago frame. The sales loss is just above last month’s estimate of 1.05 billion pounds ($1.43 billion) for Primark.
ABF said that while the extent and timing of restrictions have varied by market, the majority of its stores were closed during November and from the end of December.
“We have implemented operational plans to manage the consequences of the closures. As a result, overhead costs have been partially mitigated with some 25 percent of operating costs of the closed stores being saved during the period,” ABF said. “We expect the adjusted operating profit for Primark in the first half to be marginally above break-even, but which would compare to an adjusted operating profit of 441 million pounds ($623.6 million) for the same period in the last financial year.”
For the second half, ABF estimated that the sales lost due to store closures will be in the range of 480 million pounds ($678.8 million). The loss after cost mitigation is expected to be 170 million pounds ($240.4 million).
ABF said over the past several weeks, stores in Austria, Poland and Slovenia have reopened, with strong business so far. Sales reflected demand for children’s wear, nightwear and loungewear. Primark currently has 77 store open, reflecting 22 percent of its total retail selling space. Stores across Europe are expected to begin reopening in March, with 153 U.K. stores likely to reopen on April 12.
“We expect the period after reopening to be very cash generative. We expect to sell the 150 million pounds ($212.1 million) of spring-summer inventory held over from last year and our cash outlay in the second half for the coming autumn-winter season will mostly benefit from the 260 million pounds ($367.7 million) [of] autumn-winter stock held over from the first half,” ABF said, adding that all orders placed with suppliers “will be honored.”
ABF said that business was brisk when stores were open, although comparable sales fell 15 percent due to lower category spend and sagging foot traffic amid government mandates. Even when stores were open, hours of operation were restricted. ABF said Italy mandated closures at the weekends and Spain required early closings for open stores. Across the pond, ABF said its business in the U.S. continued to perform, with strong sales at newly opened stores at New Jersey’s American Dream mall and Florida’s Sawgrass Mills.
For stores that were open over the holiday period, all Christmas and gifting lines were sold out, and performance at “stay at home” categories—such as nightwear and loungewear—were strong. Those sales helped to “substantially lower” the level of markdowns needed versus a year ago, ABF said.