Primark owner to hand back £72m in furlough funds after record sales

Sarah Butler and Julia Kollewe
·4 min read
<span>Photograph: Christopher Furlong/Getty Images</span>
Photograph: Christopher Furlong/Getty Images

The owner of Primark is to hand back £72m in furlough payments to the UK government after record sales at its newly reopened stores in England and Wales last week as shoppers sought out summer fashions for the return to socialising.

Associated British Foods, which owns the cut-price clothing and homewares retailer, said more than half the stores broke their own sales records, with many offering extended opening hours. Large queues formed outside some shops before 7am on 12 April, following a three-month closure under the latest coronavirus lockdown.

The retailer, which does not trade online, said it had taken a £3bn hit to sales and lost £1bn of profit in the past 12 months because of the pandemic, but that all of its 65,000 jobs globally were saved thanks to job retention schemes in the UK and Europe.

ABF intends to repay £121m in government support for this year, including £72m to the UK government, following the reopening of shops.

The retailer is paying back the cash despite a 90% slump in profits to £43m in the six months to 27 February, when sales fell by 40% to £2.2bn. Like-for-like sales were down 6% in the UK and 20% in the eurozone over the half year.

George Weston, the ABF chief executive, said: “It is the right thing to do. There is £700m [in cash] still on the balance sheet and the English and Welsh stores are trading so well that [paying back the government support] doesn’t present a risk to the sustainability of the business and we want to repay it. It’s done its job and was incredibly valued and reassuring but it’s time to repay the taxpayer.”

He said shoppers appeared to be far more confident about returning to the high street this month than they had been last summer or in the winter, with sales of cosmetics and women’s fashions, including heels, handbags, T-shirts and gingham dresses, selling well for the first time in over a year.

City centre stores in Birmingham, Manchester and London had recovered much more than after previous lockdowns.

“People have headed back to the high street in large numbers. As long as that confidence remains in place among shoppers I think sales will remain good,” Weston said.

Basket size increased compared with pre-Covid levels, and shopper numbers across Primark’s high street, shopping centre and retail park outlets bounced back to 2019 rates.

Primark’s English and Welsh stores represent 40% of its total retail selling space. Its 20 stores in Scotland are expected to reopen on 26 April.

However, progress in the eurozone has been mixed, where new lockdowns to stem a third wave of Covid infections have been imposed in France, Germany and Italy. In the Netherlands, Germany and Belgium, shops are open but customers have to pre-book, under a “click-and-meet” system to limit numbers.

About £260m of autumn and winter staples such as pyjamas and slippers, which were not delivered to the stores, will be held over and sold later this year. The company has also written down £21m on winter stocks which had already been sent to stores last year and will be cleared at a discount.

The retailer expects to have 68% of its retail selling space open by the end of April, which rises to 79% if shops with restricted trading are included.

Despite the difficulties, Weston said there were still no plans for Primark to begin selling goods online. Instead, it will be stepping up investment in digital marketing via social media to encourage shoppers to visit stores.

ABF’s food businesses fared better, recording a 30% rise in adjusted operating profit. The group said people, stuck at home, drank more tea and Ovaltine, and Twinings revenues were ahead of the previous year, driven by the popularity of herbal and fruit infusions and surging demand in France.

Customers also bought more Jordans and Dorset Cereals, Ryvita crispbread and Patak’s and Blue Dragon curry sauces, as well as home-baking products in the UK including Silver Spoon sugar. ABF’s overall pretax profit fell by 7% to £275m.

However, shares in the company slipped 6% to £23.14 as the company warned that grocery sales were likely to slow in the second half of the year as shoppers returned to dining out and cooked less at home.