The clothing retailer is expected to have lost £2bn of sales and some £650mln of profit in the year to September 12 as a result of COVID-19 lockdowns.
The cash burn from this month’s new rounds of closures is estimated to be around £375mln.
As of Monday, all the fast-fashion sites in the Republic of Ireland, France, Belgium, Wales, Catalonia in Spain and Slovenia were temporarily closed, representing 19% of the FTSE 100 group’s total retail selling space.
When, on Thursday, England enters its month-long lockdown, the closures will extend to 57% of AB Food’s total selling space.
No to e-commerce
But the conglomerate’s chief executive George Weston, grandson of AB Foods founder Garfield, remains adamant that the fast-fashion retailer will remain offline.
“I think that COVID has more demonstrated the strength of Primark than the weakness,” he told Reuters.
“What we’ve seen with Primark is when people are able to shop they prefer to shop with us than do so online.”
Weston also noted that over half of the brand’s regular customers were waiting for stores to reopen rather than buying online, which he called “a very reassuring statistic”.
“I don’t think click-and-collect would work. We have a high footfall, low price model. The logistics would be very difficult,” he also told the Financial Times.
However, analysts are not convinced.
“The company may well regret its resistance to creating an online presence, as it can’t make up the shortfall in digital sales,” analyst Susannah Streeter at Hargreaves Lansdown commented.
“It’s easier for the company to assess the potential damage given that Primark sales took a huge hit earlier in the year during the first lockdown. Pent up demand for fashion saw customers flood back in the summer but that profit would be wiped out if doors are locked during the key Christmas period.”
“The group’s food orientated operations could benefit from consumers being stuck at home again, opting for trusted brands, but ABF’s substantial cash pile will come in very handy if Primark’s business takes this big hit.”
Yes to Christmas
Richard Hunter at interactive investor noted that even prior to the latest announcement, Primark had not recovered footfall to many of its flagship city centre stores, although some of this slack had been taken up by out of town retail parks.
Russ Mould, investment director at AJ Bell, said that AB Foods now has to “play a waiting game” hoping that the current lockdown conditions will ease by early December so it can shift all the Christmas-themed products currently sitting on the shelves.
“Retailers are highly dependent on the last few months of the year to sell products and those like Primark with no internet presence are going to be left out in the cold,” he noted.
“It all comes down to the ability to survive a bleak winter and ABF seems confident it has the financial resources to come out the other side intact.”
In fact, Weston called for store opening hours to be extended in December once the lockdown is over.
He said that longer trading hours, even up to 24 hours per day in certain locations, would be a welcome boost for retailers who will have to meet strong Christmas demand.
No to dividends
In fact, in its full-year results on Tuesday, AB Foods did not propose a final dividend to see how the key festive season plays out for Primark.
The move is hurting the Weston family, who own 431mln shares or 54.5% of the company through their Wittington Investments vehicle, which should have pocketed them a £147mln distribution for the year to September 2019.
“The lack of a dividend is disappointing if understandable news, and comes against hopes that at least a reduced payout was to be made,” Hunter commented.
“It is likely that the dividend is simply the victim of the latest announced lockdown, as the company attempts to hunker down once more.”
Shares dipped 1% to 1,707p on Tuesday afternoon, having shed 34% of their value in the year to date and only recovered 6% from March lows.