- Primark owner AB Foods is concerned about potential shortages in Primark clothing lines later this year
- The group said it’s working closely with its suppliers to assess and fulfill the potential gap
- AB Foods estimates Primark’s first-half sales to advance 4.2%
Today, Associated British Foods warned about the potential shortages of some clothing lines in its Primark later this year, as its production in China keeps getting delayed due to the coronavirus.
In its 24-week trading update, AB Foods said it expects the operating profit for Primark to be “marginally down” compared to last year, despite the 4.2% sales growth.
Coronavirus has taken 2,442 lives and infected 76,936 people in China, and has repressed the country’s economy.
The group said it usually stocks up before the Chinese New Year, which means that there should be no short-term issues. Over 40% of Primark’s products come from China.
Primark owner said the company was cooperating closely with its Chinese suppliers to evaluate corona’s impact on their factories and supply chains, as well as their capacity to deliver current orders. AB Foods maintained its overall financial outlook for the full 2019-20 year.
“If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases,” it said.
“We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions.”
Shares of AB Foods trade 1.6% lower today. The majority of the group’s shares are held by the family of Chief Executive George Weston.
AB Foods CFO John Bason said Primark was in talks with its suppliers in Bangladesh, Cambodia, Vietnam, Turkey and Eastern Europe to address the shortcomings, however, some products from China can not be reproduced elsewhere, he said.
“There are in accessories or whatever, areas like that, that China is very good at that are harder to source from elsewhere…So I’m not guaranteeing that we can replace all of the shortfalls from China,” said Bason.
Apart from Primark, AB Foods also runs major sugar, grocery, ingredients, and agriculture businesses, a few of which are operating in China.
According to the first half guidance to February 29, AB Foods expects sales and operating profit to be higher than the year before.
Primark’s first-half sales are expected to rise by 4.2%, close to the year before. Sales in the UK were forecast up 3.0%, while sales in Europe are expected to jump 5.3%.