Primark to repay furlough cash as sales bounce back
The owner of Primark will repay £121m in government furlough support and resume the dividend despite a slump in profits.
Associated British Foods, which also owns Ryvita and Twinings tea, expects profits to recover at Primark after a “record week” as non-essential shops reopened in England and Wales last week.
It plans to trade from 68pc of its retail space by the end of April and fully reopen in the coming months, but chief executive George Weston warned that further restrictions could follow.
“There is so much uncertainty still in retail and it’s possible that we will face further lockdowns so we’re happier but still very cautious," he said.
“We lost two people to the disease just last week alone so our optimism is tempered by the reality that only in some cases we seem to be coming out of it [pandemic].”
Group sales fell 17pc to £6.3bn and adjusted operating profits halved to £319m in the six months to February 27 as Primark's stores remained closed for most of the autumn and winter periods.
Mr Weston, whose grandfather founded the company, said the fashion chain would have “lost money faster” had it sold its clothing online.
Primark could introduce click-and-collect services, he added, but it had no imminent plans to do so.
The retailer has shunned e-commerce while most of its rivals have sought to trade online in lockdown. The cost of home delivery was far greater than its profit margins on products, the company claims.
“We are a bricks-and-mortar retailer that’s different from an online retailer and we were unlucky that it hit certain sectors of the economy incredibly hard, and we were one of them,” Mr Weston said.
Richard Chamberlain, a retail analyst at Royal Bank of Canada, said: “Although it lacks a transactional digital offer, we think its prices act as a barrier to entry versus online competitors.”
He added that once Primark reopened the majority of its stores there will be a gradual recovery in profitability. Nevertheless, the bank assumed that profits would be lower this year for the retailer.
ABF declared an interim dividend of 6.2p a share totalling £49m after it suspended it last year as Covid took hold around the world.
Mr Weston said: “It’s a really important part of our purpose to reward our shareholders. It’s also important to pay the support that the taxpayer has given not us, but our people through lockdown. We want to put that behind us and return as much as we can to normality.”
ABF claimed £98m in furlough cash during the previous financial year to support Primark's 65,000 workers.
A further £79m was claimed in the six months to February 27, with the total hitting £121m, which it will repay. This included the £72m to the Government.
Like-for-like sales fell 6pc in the UK and were down by a fifth in Europe. Primark’s English and Welsh stores represent 40pc of its total retail selling space. Its 20 stores in Scotland are expected to reopen on April 26.
Since retail reopened, shoppers have been buying underwear and pyjamas as well as handbags and jewellery at Primark.
Mr Weston said he planned to invest more in digital marketing to attract shoppers to its stores. There was “room for improvement in our social media engagement” despite having 22m followers across several networks.
He added: “The website doesn’t have the information that it should and it helps consumers plan their shopping. We’re investing to put that right. We see increasing paybacks from paid posts and influencers.”
Shares in ABF fell 5.9pc to £23.15.
