March 16, 2020 / 7:41 AM / 13 days ago

AB Foods shuts Primark stores over coronavirus and sales fall

(Reuters) - Associated British Foods (ABF.L) has been forced to close 74 Primark fashion stores in continental Europe due to government measures to combat coronavirus, while sales have fallen in those still open, it said on Monday.

FILE PHOTO: Shoppers walk past a Primark store on Oxford Street in London, Britain December 17, 2018. REUTERS/Simon Dawson

Shares in AB Foods, which also owns major sugar, grocery, ingredients and agriculture businesses, slid 13% by 1108 GMT after it also said it could not provide earnings guidance for the full 2020-21 year due to the uncertain outlook.

Rivals’ share prices also fell sharply - Marks & Spencer (MKS.L) was down 17.4% and Next (NXT.L) was down 11.9%.

“There is no doubt that all clothing retailers are seeing lower demand...Peoples’ immediate priorities are in other areas,” AB Foods’ finance director John Bason told Reuters.

The group said it closed 20% of Primark’s selling space in continental Europe which the World Health Organisation says is now the epicentre of the coronavirus outbreak.

Primark generates about half of the group’s revenue and profit.

Primark stores in Italy, France, Spain and Austria were now closed until their respective governments permit them to re-open. AB Foods said with these stores generating 30% of Primark’s sales, the group had expected sales from them of 190 million pounds ($233 million) over the next month.

The group said the remainder of the Primark estate, including Britain which represents 41% of sales, has seen like-for-like sales declines over the last two weeks which accelerated over the past few days due to reduced footfall.

The group does not expect to be able to significantly mitigate the lost Primark sales. However, it has not seen a material impact in its sugar, grocery, ingredients and agriculture businesses, from the outbreak.

AB Foods’ brands include Silver Spoon sugar, Kingsmill bread, Twinings tea, Ovaltine and Jordans cereal.

“We’re prioritising the production of food,” said Bason.

“It shouldn’t be lost in this that whilst we’re talking about financial guidance, it’s our responsibility to keep food production going. All of our food factories are doing that,” he said.

In February, AB Foods had highlighted the risk to supply of goods from its suppliers in China.

It said that since then, the situation in China has improved, with most factories supplying Primark having re-opened. As a result, supply shortages from China are now expected to be minimal.

The group also said it has a strong balance sheet, substantial cash liquidity with some 800 million pounds of net cash at the half year and significant undrawn bank facilities.

Reporting by James Davey in London and Tanishaa Nadkar in Bengaluru, Editing by Devika Syamnath and Emelia Sithole-Matarise

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