// AB Foods issues pre-close update to say it expects Primark to report around £2bn in full year sales
// Sales driven by larger customer baskets with transaction sizes initially “significantly higher” than last year due to “pent-up demand”
// Earlier-than-expected reopening of stores means it now expects to book a £150m hit from unsold inventory, instead of £284m
The parent company of Primark has said that sales at the high street retailer have beaten expectations over the past quarter after exiting lockdown and reopening its stores.
In a pre-closing update for the year ending September 12, AB Foods told investors that Primark sales have been “reassuring and encouraging” since stores welcomed customers again in June in England, and May and July in other territories.
Primark’s cumulative sales since reopening to the year-end are expected to be £2 billion and its adjusted operating profit on an IFRS16 basis for the year, before exceptional items, is now expected to be at least at the top end of the previously advised £300 million – £350 million range.
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AB Foods added that compared to pre-Covid, Primark’s sales performance since reopening has in aggregate been “reassuring and encouraging”, and highlighted that price markdowns for the period since reopening have been low.
“Total customer spend on clothing, footwear and accessories in our markets has been impacted by Covid-19,” AB Foods said in its statement this morning.
“It has been recovering from a low point in April and the rate accelerated with the reopening of stores.
“Since reopening we have seen increasing numbers of transactions driven by footfall. The average basket size was initially significantly higher than last year, reflecting some pent-up demand, and while this outperformance has reduced in recent weeks it remains higher than a year ago.”
AB Foods said Primark sales at stores in retail parks were higher than a year ago, while shopping centre and regional high street stores are broadly in line with last year.
However, Primark’s 16 largest destination city centre stores have suffered “significant” decline in footfall and contributed to only eight per cent of total sales since lockdown, compared to 13 per cent pre-Covid.
Meanwhile, Primark said full-year sales in the UK since reopening are expected to be 12 per cent lower on a like-for-like basis.
If the four large UK destination city centre stores are excluded, the decline is expected to be five per cent.
Despite this, AB Foods highlighted that in the latest four-week UK market data for sales in all channels, Primark achieved its highest ever value and volume shares for this time of year.
Meanwhile, sales across the rest of Europe are expected to be 17 per cent lower on a like-for-like basis, reflecting increased public health restrictions, particularly in Spain and Portugal.
Excluding the retailer’s 11 destination city centre stores, like-for-like sales are expected to be down 13 per cent.
On the other hand, Primark’s sales in the US are expected to be nine per cent lower on a like-for-like basis, but are two per cent ahead when excluding its Boston destination city centre store.
In its half-year trading update, AB Foods recognised an exceptional charge of £284 million against unsold inventory.
This morning it said that the earlier-than-expected reopening of Primark’s stores and stronger-than-expected trading over the summer means the book value of spring/summer inventory that will be carried into next year is now expected to be around £150 million.
“The cash generated by the sale of this stock on hand is the major contributor to our better net cash balance at the year-end,” AB Foods said.
“We will review both our stocks on hand and our commitments at the year-end and expect this to result in a significant reduction in the exceptional charge.
“Current orders being placed are benefiting from recent weakness in the US dollar.”
Separately, AB Foods said trading in its food divisions have also been better than predicted so far in the fourth quarter.