Business

Penneys and Primark to raise prices as cost pressures mount

Retailer plans price increases for autumn-winter stock in delicate balancing act

Penneys on Mary Street, Dublin. Photograph: Dara Mac Dónaill

Tue Apr 26 2022 - 08:04

Dublin-based budget fashion chain Primark (which operates as Penneys in the Irish market) will raise prices as it battles severe inflationary pressures, its parent, Associated British Foods, said on Tuesday as it also warned about the margin outlook at its food businesses, sending shares lower.

The group said Primark had been unable to fully offset the cost pressures it was facing with savings and so would 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.

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Rival Next said last month its prices would rise by up to 8 per cent 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 per cent in early morning trading.

Primark’s sales increased 59 per cent to £3.54 billion (€4.2 billion) in its first half to March 5th 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 per cent versus 11.7 per cent in the first half.

Food businesses

Bason said that since the end of the first half, Primark’s sales had continued to improve in the UK 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.

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

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 with 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.

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