Associated British Foods Plc warned that soaring inflation in Britain means it will have to selectively increase prices at the Primark value clothing chain.
Famed for its low prices, Primark can’t offset all inflationary pressures with cost savings and will have to make “selective price increases” across some of its autumn and winter range but will remain competitive, the company said in a statement Tuesday.
“The most important thing is that we will remain the most competitive, best priced clothing retailer on the high street or online,” said Chief Executive Officer George Weston on a call. “We obsess about price.”
Shares in Associated British Foods fell more than 7% in early trading in London Tuesday.
The 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 grappling with severe inflation in its food businesses, expects to make “significant progress” in adjusted operating profit this year.
Primark has been hurt more than some rivals by European lockdowns and restrictions around Covid because the chain lacks an online business to fall back on. While Primark’s sales in the U.K. and Ireland are strong they are taking longer to get back to normal on the continent where consumer sentiment remains weaker. Earlier this year Primark said it plans to cut 400 jobs to reduce costs.
Only a portion of the autumn and winter range will see prices move up while the spring and summer offerings will not move, said Weston.
“This is the highest inflation rate in 30 or 40 years depending on what article you’re reading,” he said, adding that this is the first time in “quite a long time” that Primark has had to raise prices.
A number of retailers have warned they will have to increase prices as the cost of everything from energy to packaging and labor increases. Next Plc, the clothing and homewares chain, lowered its outlook last month as the war in Ukraine and record inflation in Britain dimmed the retailer’s outlook. “It’s hard to recall a time when sales have been harder to forecast,” the company said.
Associated British Foods said it expects a bigger drop in margins at all its food businesses, including grocery, ingredients and sugar, than previously forecast for the full year due to rising raw materials, commodities, supply chain and energy costs.