Primark still impressive despite store closures
IT has been a dire time for the high street and Primark owner Associated British Foods has certainly faced difficulties.
Primark is the group’s biggest division. That’s why total group revenues fell 18 per cent at the half year to £6.3billion. With Primark stores closed for over half the trading period, that isn’t a surprise.
Large shops come with a lot of costs that can’t be flexed. So the drop in revenue saw an even more dramatic fall in operating profits. These declined 46 per cent to £369million. ABF also expects Primark closures and social distancing to knock £700million off sales in the second half. But underneath these disappointing numbers is quite an impressive business.
Demand for Primark’s recently re-opened stores has been phenomenal. The group is so confident in the outlook for Primark, it feels able to repay £121million received from job retention schemes. That’s even more remarkable when you consider Primark’s lack of online offering.
ABF also has an eclectic mix of food businesses. These have been a real asset because they’ve offset some of the profit and cash outflow caused by closures. The grocery division saw operating profits rise six per cent to £199million in the first half. The business is enjoying higher supermarket sales because of the pandemic. Twinings and Ovaltine have been very good performers.
Performance from the food businesses is expected to soften in the latter part of the year. That’s probably because as the vaccine roll out continues, spending will normalise.
These businesses offer a back-up source of income. They are one of the reasons ABF feels comfortable re-starting the dividend. It announced an interim dividend of 6.2p per share and the prospective yield for the next 12 months is 1.8 per cent.
The outlook for ABF in the short term is mixed. But its competitive retail product and diversified interests means we think it’s well placed longer-term.
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