How Are Primark and Sainsbury Preparing For The Second Lockdown?

Summary

• Stores of Primark have already temporarily shut down in Ireland, France, Belgium, Wales, Catalonia in Spain, and Slovenia
• Stores in England are supposed to remain closed from 5 November to 2 December 2020 with the imposition of lockdown restrictions
• Closure of stores in England will account for 57 per cent of whole of Primark’s stores that is estimated to incur a loss in sales worth £375 million  

On 31 October 2020, the UK Government had announced that it intends to shut down all the non-essential shops in England for one month commencing 5 November 2020 as the nation goes into the second lockdown. Boris Johnson, the UK’s Prime Minister also confirmed that until 2 December 2020, the clothing stores will be among the non-essential shops which are required to close.

On 2 November 2020, Associated British Foods PLC (LON: ABF), the owner of Primark had issued an update in the light of increasing restrictions. Movement of people and trading activities have been restricted in many of the markets particularly in regions where Primark operates. Primark estimates to incur a loss of sales of £375 million, assuming that temporary closure of shops takes place from 5 November 2020, accounting for 57 per cent of its total selling space.

Stores of Primark have already temporarily shut down in Belgium, Catalonia in Spain, France, Ireland, Slovenia, and Wales. This accounts for 19 per cent of Primark’s total retail selling space. On 4 November 2020, the UK parliament would be releasing the official details.

For several other markets as well, restrictions of trading hours also prevail. Further store closures are dependent of the change in infection rate across geographies.

The group is said to be implementing its operational plans which have been developed to manage the after-effects of such closures. Moreover, appropriate action leading to reduction in operating costs is also on Primark’s cards.

Financial Highlights

International food and retail company, Associated British Foods, which is the parent company of Primark group, reported a 12 per cent fall in the revenue to £13.9 billion in the release of its annual results for the period ending 12 September 2020. The group recorded adjusted operating profit was recorded as £1,024 million (2019: £1,421 million).

The ABF group lost a lot of sale volume when the Primark’s stores were closed, as a result the revenue declined, which impacted its adjusted operating profit as well. The estimated loss of sales was £2billion for Primark.

The statutory operating profit for the year was reported to be £810 million below the previous year’s level (2019: £1,282 million), driven by the decline in the adjusted operating profit. An increase in the net exceptional charges to £156 million was recorded (2019: £79 million). Basic earnings per share also witnessed a decline, recording 57.6 pence (2019: 111.1 pence).

Let’s have a look at Primark’s performance for the year:

Primark recorded a 24 per cent decline in its revenues to £5.9 billion for the full year, particularly due to the total loss of sales resulting from store closures because of the lockdown. The adjusted operating profit also fell 63 period during the period to £362 million.

In H1 2020, sales were reportedly 4 per cent higher than the previous year resulting from the increase in retail selling space and improvement in sales in Europe division. Sales in the UK region were 12 per cent lower (like-for-like basis). Sales in Europe region were also lower 17 per cent (like-for-like basis), driven by increased public health restrictions, especially in Spain and Portugal. The stores resumed their operations from mid-July. As a result of Covid-19, the estimated sales of Primark were around £2 billion lower.

(Source: Company website)

Stock Performance

On 2 November 2020, stocks of ABF fell by more than 3 per cent in early trade in London. While writing the report, Associated British Food plc shares were trading on the London Stock Exchange at GBX 1,706.00 on 3 November 2020 at 11:52 AM. The closing price of the stock was GBX 1,722 on 2 October 2020. The company had a total market capitalisation of £13,632.63 million.

On the other hand, there are companies like Sainsbury’s who are all set to combat the second lockdown with a proactive approach. Lets take a look at their plans.

Sainsbury’s plans

Sainsbury (LON: SBRY), the second largest supermarket of the UK has entered into a partnership with two delivery giants, Uber Eats and Deliveroo, for rapidly expansion of its grocery delivery capacity. Sainsbury has found new ways to serve even more of its customers, with the online grocery delivery services booming during the unprecedented crisis.

Customers will be able to choose from around 1000 Sainsbury’s products that will soon be available on the Uber Eats app for purchase, across UK’s ten locations. The first superstore to offer delivery from Uber Eats will be a Sainsbury store in Camden, London, which will facilitate the delivery under 25 minutes. A further nine stores will soon be added to the list.

Sainsbury’s 1000s of products will also be available for ordering on the Deliveroo app. Deliveroo has been very successful in securing partnerships with 16 stores so far this year and has been growly rapidly. The stores with which Sainsbury has partnered with includes Waitrose, Aldi and Morrisons, etc. 

The supermarket will look for expansion if the new partnerships prove successful.

Stock Performance

While writing the report, J Sainsbury PLC shares were trading on the London Stock Exchange at GBX 206.60 on 3 November 2020 at 3:17 PM. The closing price of the stock was GBX 207.20 on 2 November 2020. The company had total market capitalisation of £4,607.96 million.