The company reported a 34% decline in pre-tax profit due to the Covid-related closure of Primark stores
Fashion-to-groceries conglomerate Associated British Foods’ (ABF) shares softened 1.3% to £17 on Tuesday, despite pandemic-impacted annual results coming in a shade above expectations.
Weighing on sentiment was the FTSE 100 giant’s decision not to restart its dividend while management monitors ‘the impact of further Covid-19 restrictions on Primark during this important trading season’.
Results for the year ended 12 September revealed a 34% decline in pre-tax profit to £914 million due to the temporary Covid-related closure of Primark stores during the first lockdown, although this was better than the £892 million of pre-tax profit Shore Capital was forecasting.
Elsewhere within the group, the grocery business made strong progress thanks to the shift from out-of-home to in-home consumption brought about by the pandemic, while earnings also rebounded in Associated British Foods’ sugar business.
Yesterday, Associated British Foods warned its budget clothing chain faces a massive £375 million loss of sales due to store closures mandated under fresh government restrictions across Europe and Boris Johnson’s proposed second lockdown of England.
Associated British Foods has decided not to propose a final dividend, a decision Shore Capital says should come as ‘no great surprise from a commendably prudent board’.
The broker notes Associated British Foods ‘has rarely been what could be described as an income stock’ and believes it is prudent for the company to ‘retain cash resources through these still very uncertain times’.
Russ Mould, investment director at AJ Bell, commented: Associated British Foods is the latest in a growing trend for companies to announce better than expected results, perhaps showing that management teams were too pessimistic coming out of the first lockdown.
Sadly, life has changed once again with ABF’s Primark stores being affected by new lockdown restrictions in various parts of the world, so its management had every right to be cautious earlier this year, Mould said.
The Primark-owner is ‘now having to play a waiting game, hoping that the current lockdown conditions will ease by early December so it can shift all the Christmas-themed products currently sitting on the shelves.’