Primark to Raise Prices as Inflation Bites at Budget Chain

(Bloomberg) -- 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 some price increases across parts of its autumn and winter range, the company said in a statement Tuesday. Shares in AB Foods fell more than 7% in early trading in London 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 in an interview. “We obsess about price.”

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 rise 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 adjust 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. 

AB Foods said it expects a bigger drop in margins at all its food businesses, including grocery, ingredients and sugar, this year than previously forecast due to rising raw materials, commodities, supply chain and energy costs. Although AB Foods doesn’t have businesses in Russia or Ukraine, the company is still affected by rising commodity and energy prices following the invasion, such as the spike in the price of wheat.

The company makes bread under brands including Kingsmill, Sunblest and Allinson’s through its Allied Bakeries business. The price of Kingsmill has increased from 85p to £1.10, according to Weston.

“Our costs have risen very significantly,” said Weston. “We start with wheat, we bake it with natural gas and then we put it on a truck and distribute it. All those three big cost areas have risen very significantly and have done so since the invasion of Ukraine.”

The margin outlook for the company’s food businesses and for Primark is “softer than we anticipated,” RBC analyst Richard Chamberlain wrote in a note to clients, adding that he sees some “small downside risk” to full year consensus earnings forecasts. Analysts at Shore Capital lowered their full year financial estimates for the company.

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