Primark to raise prices as cost pressures mount

By James Davey

LONDON (Reuters) -Budget fashion chain Primark will raise prices as it battles severe inflationary pressures, its parent Associated British Foods said on Tuesday, as it also warned on the margin outlook at its food businesses, sending shares lower.

The group said Primark has been unable to fully offset the cost pressures it is facing with savings and so will implement selective price increases across some of its autumn/winter stock from August.

Finance chief John Bason told Reuters that Primark was keeping its pledge not to raise prices for spring/summer stock. He declined to say what the magnitude of price rises would be for autumn/winter.

“We will absolutely ensure that we are the best value around, that’s not going to change,” he said.

Rival Next said last month its prices would rise by up to 8% this year.

The pricing moves underscore the balancing act the clothing industry is facing as it struggles to protect margins without denting demand amid the biggest squeeze on household budgets for decades.

Shares in AB Foods were down 5.7% at 0852 GMT.

Primark’s sales increased 59% to 3.54 billion pounds in its first half to March 5 as COVID-19 restrictions eased.

Reflecting the inflationary pressures, it now expects a greater reduction than previously expected 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 had continued to improve in the United Kingdom, but not in continental Europe.

AB Foods, which also owns major sugar, grocery, ingredients and agricultural businesses, saw first-half adjusted operating profit nearly double to 706 million pounds ($900 million).

Sales in the food businesses, which include grocery brands Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, rose 6% to 4.34 billion pounds.

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

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

“We expect recovery in the run-rate of these margins, but the full effect of 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 a share, up from 6.2 pence, is being paid.

($1 = 0.7841 pounds)

(Reporting by James Davey; Editing by Paul Sandle and Jan Harvey)