Primark to raise prices due to inflationary pressures

Budget fashion chain Primark will raise prices as it battles severe inflationary pressures, its parent Associated British Foods said today, also warning of margin prospects in its food business.

The warnings sent the company’s shares lower.

The group said Primark, which trades as Penney here, has not been able to fully offset the cost pressures it faces with savings, so it will implement selective price increases on some of its fall/winter stock from August.

Chief Financial Officer John Bason told Reuters Primark was keeping its promise not to raise spring/summer share prices.

He declined to say how big the price increases would be for the fall/winter.

“We will absolutely make sure we have the best value, that’s not going to change,” he said.

Rival Next said last month that its prices would rise as much as 8% this year.

The price moves underscore the balancing act facing the garment industry as it struggles to protect margins without hurting demand amid the biggest squeeze on household budgets in decades.

Primark’s sales rose 59% to £3.54bn in its first half to March 5, as COVID-19 restrictions were eased in its markets.

Reflecting inflationary pressures, it now expects a larger-than-previously expected reduction in its second-half operating profit margin. The full-year margin was forecast at 10% versus 11.7% in the first half.

Bason said that since the end of the first half, Primark’s sales have continued to improve in the UK, but not in continental Europe.

AB Foods, which also owns major sugar, grocery, ingredient and agriculture businesses, saw first-half adjusted operating profit nearly double to £706m.

Sales at the food businesses, which include grocery brands Twinings Tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, rose 6% to £4.34bn.

The group’s food businesses are experiencing inflationary pressures in raw materials, commodities, supply chain and energy, which it has taken steps to offset through operating cost savings and price increases.

With commodity and energy prices rising further following Russia’s invasion of Ukraine, the group expects a larger margin squeeze in its food businesses than previously expected for the full year.

“We expect a recovery in the run rate of these margins, but the full effect of the margin recovery is now anticipated in our next financial year,” AB Foods said.

Overall, the group still expects growth in adjusted operating profit in the second half compared to the same period last year and “significant progress” in full-year adjusted operating profit.

An interim dividend of 13.8 pence per share is paid, compared to 6.2 pence.

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