Primark/Penneys profits to fall €660m due to Covid-19 impact

Profits at discount clothing retailer Primark - which trades here as Penneys - are expected to drop by around €660m this year, due to the disruption to trading caused by the Covid-19 outbreak.
Primark/Penneys profits to fall €660m due to Covid-19 impact
A pedestrian commuter walks past a closed Penneys on Dublin’s Abbey Street
A pedestrian commuter walks past a closed Penneys on Dublin’s Abbey Street

Profits at discount clothing retailer Primark – which trades here as Penneys – are expected to drop by around €660m this year, due to the disruption to trading caused by the Covid-19 outbreak.

Associated British Foods (ABF), the UK conglomerate which owns the retailer, said Primark will generate an adjusted operating profit of £300m-£350m in the 12 months to the end of September; down from last year’s total of £913m.

In a trading update, the group – which has interests across agriculture, retail, sugar, ingredients and grocery – said its total sales are down 13% in the year to date and have fallen by nearly 40% in its third quarter to the end of June.

The retail arm of the group – effectively the Primark/Penneys business – saw a 75% sales drop in the third quarter and is down 27% for the year to date.

The Primark/Penneys business – which trades in, Ireland, the UK, mainland Europe and the US - lost £650m per month in sales during the Covid lockdown. However, the retailer reopened more quickly than expected, particularly in Ireland through Penneys.

ABF said Primark/Penneys’ cumulative sales for the seven weeks up to June 20 amounted to £322m, 12% down on the same period last year. However, in the final week of that period it said trading in Ireland and England was ahead of the same period last year.

ABF's finance chief John Bason said the Primark business is "really getting back to business" and that the 12% drop in seven-week post-lockdown sales was "much better than people were expecting".

The retailer’s cash burn, or net cash outflow, over the 12 weeks to May 23 amounted to £800m when trading across all of its shops internationally was non-existent or minimal at best.

However, ABF said it expects to return to cash generation in the final quarter of its financial year. Furthermore, it anticipates that it will end its financial year with net cash of more than £750m now that Primark and Penneys is trading again.

“Most of our regional stores are performing well, especially in retail parks. Our stores in the centre of big cities are suffering from the current absence of tourism and much lower commuter footfall. Sales have been held back to some extent by a number of operating restrictions which vary by country but continue to evolve,” ABF said of Primark.

The group plans to open five more Primark stores before the end of its financial year in September – two in France, one in Poland and the two in the US.

Extensions to existing stores in Spain and Portugal will bring the retailer’s selling space to 16.3 million square feet.

The planned new US stores will bring Primark’s shop numbers there to eleven. The opening dates, however, will rely on the lifting of local Covid-19-related restrictions in New York and Florida.

Primark has already placed clothing orders worth over £800m for the coming autumn/winter season. With futher orders planned, its total spending on stock for the rest of the calendar year is likely to top £1bn.

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