Primark sales pick up but owner says it is increasing food prices | Associated British Foods

The owner of the fast fashion brand Primark has said group profits will bounce back above pre-Covid levels in its first half, but sales at its UK retail chain still remain 9% below 2019 levels.

Associated British Foods, which also owns brands including Twinings and Ovaltine as well as a sugar business, said that it expects total sales and operating profits to be strongly ahead of the equivalent period in 2021. Primark sales for the first half are expected to be more than 60% ahead of last year.

The company said that the impact of the surging costs of raw materials, and supply chain problems, at its Primark operation have been mostly balanced by cutting store operating costs and a favourable exchange rate with the US dollar. In January, the fast fashion retailer announced that it is cutting 400 management-level jobs at its retail stores.

ABF said that it is attempting to offset the rising cost of raw materials, commodities, energy and in the supply chain across its three food businesses through cost savings and price increases.

“Actions on price inevitably lag input cost inflation,” the company said. “As a result, we expect some margin reduction in these three businesses at the half year but expect our plans to deliver a recovery in the run-rate of these margins by the financial year end. ”

ABF said its net cash position had increased to £ 1.5bn from £ 705m the previous year, when store closures cost it more than £ 600m. There was an extra boost from the sale of autumn and winter inventory brought forward from the previous year.

“All of our stores are trading and remained open throughout the half year, except for short periods of store closures in Austria and the Netherlands,” said the company, which operates a network of almost 600 shops, including 191 in the UK. pressure of disruption to the supply chain experienced in the autumn has continued to alleviate despite some delays in dispatch and slightly longer lead times. ”

The company said that its colorful spring / summer collections have met a “positive initial reaction” from shoppers, with luggage and swimwear selling well in recent weeks as the public gears up for a summer holiday boom.

“Despite another bump in the road in the lead-up to Christmas arising from the Omicron variant, for the most part the store estate was open during the period and the trading update mirrors what has previously been seen when the shackles are removed at Primark, ”Said Richard Hunter, the head of markets at Interactive Investor.“ Primark’s return to form is a welcome development for the group, particularly since in better times it accounts for around half of group revenues. ”

Still, the company said continued inflationary pressure might affect profits.

“With our stock purchases largely committed for the second half of the financial year, we expect some reduction in the operating profit margin from that achieved in the first half reflecting further inflationary pressures,” it said.

ABF shares were down 3% on Monday morning.

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