Primark clothes to become pricier: Owner of the budget retailer warns it’s not immune from inflation with increases imminent
- Shares in Associated British Foods were down 2.7% in morning trading
- London-based firm made adjusted operating profit of £706m for the 24 weeks to 5 March
- The better outcome reflected all Primark stores remaining open
Budget clothing chain Primark is set to raise prices due to severe inflationary pressures, its parent company Associated British Foods revealed this morning, in another blow to squeezed households.
The group said cost pressures at Primark were such that it has been unable to offset them all with savings, and the business will therefore implement selective price increases across some of its autumn and winter stock.
Following the announcement, shares in ABF were down 5 per cent in morning trading.
Budget clothing chain Primark is set to raise prices due to severe inflationary pressures, its parent company has announced
The London-based firm – which also owns major sugar, grocery, ingredients and agricultural businesses – made adjusted operating profit of £706million for the 24 weeks to March 5, up from £369million in the previous corresponding period.
Group revenue rose 25 per cent to £7.88billion.
The better outcome reflected all Primark stores remaining open throughout the period except for short spells in Austria and Holland, compared to prolonged periods of store closure in the UK and Europe in the first half of the previous year.
This resulted in Primark’s sales increasing 59 per cent to £3.54billion.
Keith Bowman, an investment analyst at Interactive Investor, highlighted Primark’s ‘lack of a significant online presence over the course of the pandemic’ compared to other brands hampered its ability to boost sales further.
Elsewhere, sales in ABF’s food businesses – which include Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks – rose 6 per cent to £4.34billion.
The company said that it has seen a fall in Twinings retail sales over the past six months compared with a year earlier when people were drinking tea at home.
But this was offset by the launch of new products in its Wellbeing range of teas.
The group said its food businesses are experiencing increasing inflationary pressures in areas including raw materials, commodities, supply chain and energy, which it has taken action to offset through operational cost savings and price increases.
Keith Bowman highlighted Primark’s ‘lack of a significant online presence over the course of the pandemic’ compared to other brands hampered its ability to boost sales further
It said commodity and energy prices have increased further following Russia’s invasion of Ukraine.
As a result, the group expects a greater margin reduction in its food businesses than previously expected for the full year.
Overall it still expects ‘significant progress’ in adjusted operating profit. The group is paying an interim dividend of 13.8p, up from 6.2p.
George Weston, ABF chief executive, said: ‘This half-year sales and operating profit for the group returned to pre-Covid levels. Our people have responded well to the many challenges we faced.
‘Our food businesses have once again proved their operational resilience and sugar had another strong period, building on its recent track record of recovery.
‘Measures to mitigate higher costs in all our businesses have been taken and more are planned.
‘Primark delivered a significant increase in sales and profit, with stores now open and trading largely free of restrictions.’
Adam Vettese, an analyst at social investment network eToro, deemed ABF’s anticipated price hikes as ‘nothing but bad news for consumers already being battered by inflationary pressures elsewhere’.
He added: ‘Primark owner ABF has updated the market with one word consuming its interim results – inflation.
‘The firm has warned of cost pressures in previous updates but now it has admitted defeat and is making it clear that prices will have to rise for its products.
‘ABF has worked hard to prevent consumers from bearing the brunt of its input costs and its profits have not been affected, which is positive.
‘Indeed, it has doubled its first-half profits, a testament to the resilience of its Primark clothing business. But the strong numbers are a fig leaf caused by the post-covid reopening of estates and increased sales capacity.
‘The firm has made it clear in its interims today that it now needs to begin hiking prices in order to please shareholders and maintain profitability in the face of rising costs.’