Primark to raise prices as inflation bites the budget chain

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(Bloomberg) – Associated British Foods Plc has warned that soaring inflation in Britain means it will have to selectively raise prices at the clothing value chain Primark.

Famous for its low prices, Primark cannot offset all inflationary pressures with cost savings and will have to make price increases on parts of its fall and winter range, the company said in a statement on Tuesday. Shares of AB Foods fell more than 7% in early trading in London on Tuesday.

“The most important thing is that we will remain the most competitive and best priced apparel retailer in the market or online,” CEO George Weston said in an interview. “We are obsessed with price.”

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Rising costs will weigh on Primark’s performance in the second half but the company still expects the chain to achieve an operating margin of 10% for the full year. Overall, the group, which is also struggling with high inflation in its food businesses, expects to make “significant progress” in its adjusted operating profit this year.

Primark has been hit harder than some rivals by European lockdowns and restrictions around Covid, as the chain has no online business to fall back on. While Primark’s sales in the UK and Ireland are strong, they are taking longer to return to normal on the continent where consumer sentiment remains weaker. Earlier this year, Primark announced plans to cut 400 jobs to cut costs.

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Only part of the fall and winter lineup will see prices rise while spring and summer offerings won’t budge, Weston said.

‘This is the highest rate of inflation for 30 or 40 years depending on which article you read,’ he said, adding that it was the first time in ‘quite a long time’ that Primark had to rise. its prices.

A number of retailers have warned they will have to adjust prices as the cost of everything from energy to packaging and labor rises. Next Plc, the clothing and homewares chain, lowered its outlook last month as war in Ukraine and record inflation in Britain clouded the retailer’s outlook. “It’s hard to remember a time when sales were harder to predict,” the company said.

AB Foods said it expects greater margin declines across all of its food businesses, including groceries, ingredients and sugar, this year than expected due to higher raw materials, base, supply chain and energy costs. Although AB Foods has no businesses in Russia or Ukraine, the business is still affected by rising commodity and energy prices following the invasion, such as the spike in the price of wheat. .

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The company manufactures bread under brands such as Kingsmill, Sunblest and Allinson’s through its Allied Bakeries business. Kingsmill’s price has dropped from 85p to £1.10, according to Weston.

“Our costs have gone up very significantly,” Weston said. “We start with wheat, we cook it with natural gas, then we put it on a truck and distribute it. These three major cost areas have increased very significantly since the invasion of Ukraine. »

The margin outlook for the company’s food business and for Primark is ‘weaker than expected’, RBC analyst Richard Chamberlain wrote in a note to clients, adding that he sees ‘small downside risk’ in the consensus earnings forecast for the full year. Analysts at Shore Capital lowered their financial estimates for the company’s full year.

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