The owner of Primark has said it will be forced to raise prices on “selective” products in its autumn/winter ranges and issued a margin outlook warning.
Associated British Foods (ABF) said its half-year sales and operating profit for the group returned to pre-Covid levels, in interim results for the 24 weeks ended 5 March 2022.
However, the company said measures to mitigate higher costs across all its businesses had been taken and there were “more planned.”
ABF was the worst performing share on the FTSE 100 on Tuesday morning, with shares down some 5.7 per cent.
The group, which is known for selling clothes at affordable prices via Primark, said it was committed to “ensuring our price leadership and everyday affordability, especially in this environment of greater economic uncertainty.”
Primark sales were up 59 per cent to £3.5bn, as shoppers bought new outfits for holidays and social events once more.
Due to inflationary pressyres, the firm said it was now anticipating a greater reduction than previously expected for its second half operating profit margin. However, the full year Primak margin would be some 10 per cent.
Its outlook for the year was “for significant progress in adjusted operating profit and adjusted earnings per share for the group,” notwithstanding the current inflationary pressures, ABF said.
The business described its food arm as “resilient”, as adjusting profit took a nine per cent hit to £330m in the period. ABF pointed to high input cost inflation, logistics challenges, and Covid-relayed staff absences.
However, ABF said sales were up to £4.34bn, with sales and profit in its sugar division “well ahead”.
Joshua Warner, market analyst at City Index, said Primark’s rebound in earnings, rising more than nine-fold, had been “better than markets had expected and offset a fall in profits from its food-based businesses. “
Warner added: “However, the company is feeling the pressure from the inflationary environment and said all its businesses are suffering disruption from logistics challenges, Covid-19 staff absences and rising costs across supply chains.
“It has warned its margin at its food-based businesses won’t fully recover this financial year as first hoped, pushing it into the next financial year, and that profitability at Primark will tighten more than originally anticipated as a result. Still, AB Foods said Primark’s overall adjusted operating profit will grow in the second half thanks to a 10 per cent expansion in selling space as it continues to open new stores. ”