Primark warns over rising cotton prices

Primark owner Associated British Foods warned the sharp hike in cotton prices will hit margins at its discount fashion chain as it beat forecasts with a 25 per cent rise in full-year earnings.

Chief executive George Weston said that Primark will not surrender its price leadership status in clothing and will take a hit to its profit margin to soften the blow for its customers from the recent doubling in cotton prices.

"We will remain the price leader, there is no doubt that we will not surrender this position. We don't expect the cotton price to affect sales growth but it will affect the margin in the short term," Weston told a annual results briefing.

Primark's 204 stores showed a rise in operating margins to 12.5 per cent in the year to mid-September from 10.9 per cent previously, and Weston expects the margin in the current year to drift back down between these two figures.

The London-based group which markets Silver Spoon sugar, Twinings tea and Ovaltine drinks also warned about rising wheat prices, the uncertainty about the global economic outlook and the impact of Value Added Tax rises in Europe.

This prompted a cautious outlook, as the group only said it expects to see revenue and profit growth in the current year but gave no indication of the size of any increase.

The group, 55 per cent owned by the family of Chief Executive Weston, posted adjusted earnings of 72.2 pence a share for the year to 18 September.