--Associated British Foods' clothing arm Primark took a GBP1.10 billion hit on sales, pulling group profits down in 1H fiscal 2021
--The U.K. conglomerate has resumed dividends and plans to repay GBP121 million of job retention support
--The company anticipates a further hit on Primark revenue of GBP700 million in the second half but retains plans of expansion for the fashion retailer
By Matteo Castia
Associated British Foods PLC said Tuesday that lost sales at Primark amid the coronavirus pandemic caused a fall in fiscal 2021 first-half profit, but that it has resumed dividends and intends to repay 121 million pounds ($169.2 million) in job-retention support.
The British conglomerate made a pretax profit of GBP275 million in the 24 weeks ended Feb. 27, compared with GBP298 million in the year-earlier period.
Revenue fell to GBP6.31 billion from GBP7.65 billion, largely due to declining sales at Primark amid store closures owing to the pandemic.
Sales lost at the fashion retailer amounted to GBP1.10 billion in the first half compared with a year ago, and were down 15% on year on a like-for-like basis after reopening due to lower footfall and category spending, the company said.
"Even in the brief period when stores were open, customers were generally less willing to travel on the basis of government guidelines and, in any event, many were carrying the burden of an uncertain jobs outlook," Interactive Investor's Richard Hunter said.
Primark revenue in the first half came in at GBP2.23 billion.
"On the assumption that our English and Welsh stores remain open, Primark will return to cash generation," it said.
Associated British Foods warned that it expects a further GBP700 million of lost sales in the second half, owing to the remaining periods of store closures.
The company had warned on Feb. 25 that Primark would suffer loss of sales of GBP1.10 billion in the first half and a further GBP480 million in the second half due to the pandemic.
Despite the worsening of loss of sales estimate, the FTSE 100 group said Tuesday that it intends to repay GBP121 million of job retention schemes, including GBP72 million to the U.K. government.
The company also said business in its other divisions--grocery, sugar, agriculture, ingredients--was strong during the first half.
"AB Foods has again displayed the benefits of not having all of its eggs in one basket," according to Mr. Hunter.
The conglomerate said it expects those divisions' performance to be weaker in the second half.
Given the improving environment, the board declared an interim dividend of 6.2 pence. No dividend was declared at half-year results for fiscal 2020, due to the pandemic.
"The degree of uncertainty is now substantially lower than last year due to a large proportion of the U.K. adult population having been vaccinated and the successful reopening of Primark's English and Welsh stores," the company said.
With the reopening of stores in England and Wales on April 12 and expected reopenings in some markets over the coming weeks, Primark will be trading at the end of April from 68% of its selling space, Associated British Food said. This figure increases to 79% if stores with restricted trading are included, it said.
U.K. bank Barclays warned that no reopening dates are on the table yet for Primark shops in France, Germany and Ireland.
The company said Primark pipeline of store openings remains strong across a number of markets.
"We are opening three further stores in Spain this financial year, and a second store in Rome, the first of eight new store openings in Italy by 2022. We are in the early stages of our expansion into eastern Europe, with a second store to open in Poland and our first store in [the Czech Republic]...In addition, we have plans to accelerate our growth in the U.S. over the next five years," Associated British Food said.
The upheaval in retail caused by the pandemic will provide opportunities to accelerate store openings and take market share, given the sustained pace of the planned expansion and a proposition still relevant to today's digitally native consumers, brokerage Liberum said.
Write to Matteo Castia at email@example.com
(END) Dow Jones Newswires
April 20, 2021 08:05 ET (12:05 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.