The good news ended with the first half: ABF said that in the first six months of fiscal 2019-20, which ended in early March, adjusted operating profit will be ahead of its previous expectations, mainly due to higher margins for Primark and the grocery business.
As a result, the company said adjusted earnings per share for the first half will now be ahead of last year on both a lease-adjusted and a reported basis.
The company also said that due to the improving public health situation in China, which has already seen its cases of COVID-19 peak, most factories supplying Primark have reopened.
“As a result, supply shortages from that country are now expected to be minimal,” the company said. ABF added that it had not seen a material impact on its sugar, grocery, ingredients and agriculture businesses. The latter should come as no surprise as supermarket shelves across the U.S. and Europe are being picked clean by panicky shoppers.
The story is a different one for fashion and accessories: The spread of the virus across Europe has meant that stores accounting for 20 percent of Primark’s selling space are now closed until the respective governments permit them to reopen.
ABF said those stores — in countries including Italy, France, Austria and Spain — currently generate 30 percent of Primark’s sales.
“From the date of this announcement, we had expected sales of 190 million pounds from these stores over the next four weeks. The remainder of the estate, including the U.K. which represents 41 percent of sales, has seen like-for-like sales declines over the last two weeks and these have accelerated over the past few days as a result of reduced footfall,” the company said.
ABF said while it was managing the business “appropriately,” it does not expect to “significantly mitigate” the effect of the contribution lost from these sales.
The situation will most likely deteriorate even further: In a research note on Monday morning, Bernstein said it expects to see partial closures in the U.K., and in the remainder of the markets, including Germany and the U.S.
“This will impact not only (like-for-like sales), but also margin, with massive operating deleverage on the fixed cost base. With no online presence, we do not expect any recovery of these lost sales within the half,” Bernstein said.
Given the effect of COVID-19 on Primark’s sales, the company said, it is too early to provide earnings guidance for the remainder of the current financial year.
“The group 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,” said ABF, adding that the group will provide a further update with interim results on April 21.