Retail

Primark takes £284m hit on unsold stock


Primark, the UK fast-fashion retailer, has taken a £284m writedown against surplus stock and acknowledged that sales will be lower even after it reopens stores once coronavirus lockdowns are lifted. 

The company, owned by conglomerate Associated British Foods, said on Tuesday that it had modelled the impact of keeping its 375 Primark stores closed until May 2021, and that of reopening them but then having to impose a second shutdown.

It said that neither scenario exhausted its cash and agreed credit facilities, but acknowledged that even once stores were reopened, the likely social distancing measures required would mean reduced sales.

“Much as I would love to be allowed to reopen Primark stores . . . I know that we must not do so until we have suppressed this disease,” said George Weston, chief executive. 

“And when we are allowed to reopen, we must make our Primark stores safe for our staff and our customers, even if that means ensuring there are fewer people shopping at any one time and so accepting lower sales, at least until the remaining risk is minimal,” he added.

The charge against inventory reflected its likely lower realisable value, the company said.

With no online sales channel to mitigate the impact of closed stores, Primark has been hit hard by the coronavirus pandemic. It operates 375 stores across Europe and the US, all of which are currently shut at a cost of £650m each month in lost sales.

The benefit of various government schemes during the coronavirus pandemic has reduced its operating expenses, but Primark is still seeing a cash outflow each month of roughly £100m. It said it remained in discussions with landlords about its rental obligations, but had softened its stance towards suppliers after strong criticism from workers’ rights groups.

On Monday, it said it would pay for an additional £370m of orders yet to leave suppliers’ factories, meaning that it would now take “all product that was both in production and finished, and planned for handover by April 17”.

It added that it hoped to resume placing future orders for autumn and winter ranges “once there is further clarification of the reopening of stores”.

ABF on Tuesday released results for the six months to the end of February, showing that same-store sales at Primark fell 0.5 per cent, but lower-than-expected margin decline limited the impact on operating profit, which was 2 per cent lower at £441m. Total sales were £3.71bn, up 4 per cent at constant currencies.

There was a “marked upturn” in sales in the eurozone, where problems in Germany had previously held back growth. But store openings totalling half a million square feet in the third quarter have been delayed because of the pandemic.

ABF did not provide profit guidance for the full year and said that despite £800m of cash plus additional credit facilities, it was not declaring an interim dividend.



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