Budget fashion chain Primark, the jewel in the crown of foods to fashion conglomerate Associated British Foods (ABF), is closing all its stores as the coronavirus pandemic deepens. In an all too familiar drastic move for UK high street retailers, the decision is expected to see the group lose around £650m a month in revenue.
AB Foods Primark’ chain today announced it will also stop placing new orders with suppliers, news that sent shares in the group plunging 7.6% to £16.25.
AB Foods did say that its portfolio of food-related businesses, which include things like Twinings Tea and Ryvita crackers, are holding up well. A major positive for investors is that the group gave no indication that it is considering cutting or suspending dividends, although this obviously remains a fluid situation.
PULLING DOWN THE SHUTTERS
Around 20% of Primark’s selling space, accounting for about 30% of sales, has been closed since 16 March due to the escalating impact of the coronavirus.
However, since then, and following Sunday’s shuttering of all its UK stores (representing 41% of sales), all 376 Primark stores in 12 countries are now closed until further notice. This seismic development will see the discount clothing chain lose ‘some £650m of net sales per month’.
PULLING IN ITS HORNS
In today’s update, Associated British Foods outlined actions to mitigate the effect of lost sales on the business with all spending being reviewed.
In the first instance, the company has ‘implemented a significant reduction in discretionary spend’, said Associated British Foods. ‘We are making good progress in also reducing fixed costs following discussions with counterparties, in particular landlords, and welcome the recently announced government support in the countries in which our stores operate. As a result, we currently estimate being able to recover some 50% of total operating costs.’
And in order to manage Primark stock, Associated British Foods has ‘also regrettably informed suppliers that we will stop placing new orders’.
CASHED-UP COLOSSUS
Thankfully for shareholders, Associated British Foods is a highly diversified conglomerate which reiterated that it has ‘not seen a material impact in our sugar, grocery, ingredients and agriculture businesses’.
Furthermore, management emphasised the balance sheet strength of the group which has total available liquidity of £1.9bn in the form of £800m of net cash at the half year and a revolving credit facility of some £1.1bn. While panicked shoppers may be grabbing its wares from the supermarket shelves, there was no mention of shelving the dividend in today’s statement.
