The owner of leading discount fashion store chain Primark has warned it will be forced to raise prices in another blow to hard hit consumers facing a cost of living crisis.
Associated British Foods (ABF), which also owns food brands including Ovaltine, Twinings and Silver Spoon sugar, said that although sales and profits had returned to pre-Covid levels across the group, it would be forced to raise prices at the retailer into 2023.
Primark has stores in Dundee, in the Overgate Centre, and in Perth.
Chief executive George Weston said: “Inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock.
“However, we are committed to ensuring our price leadership and everyday affordability, especially in this environment of greater economic uncertainty.”
Millions of businesses across the UK are having to make decisions about their prices.
It has meant some choosing to pass on these costs to customers, though many are wary as this is likely to discourage people from shopping with them.
John Bason, the company’s finance director, told the PA news agency that soaring gas prices have particularly driven the company to plan price hikes later in the year.
“We had not originally expected the level of inflation to last as long as we are going to see,” he said.
Ukraine knock-on effect
“The situation in Ukraine means industrial gas prices have jumped six-fold so meant we have had to reassess pricing.”
However, despite price rises, Primark expects to see its sales increase because it is opening more stores, expanding its so-called selling space by 10% compared with the end of the 2019 financial year.
“As a consequence, total sales for Primark in the second half are anticipated to be ahead of the second half of the 2019 financial year, which was pre-Covid,” the firm said.
The company added that it has seen a fall in Twinings retail sales over the past six months compared with a year earlier when people were drinking tea at home.
But this was offset by the launch of new products in its Wellbeing range of teas.
ABF’s pre-tax profit rose 131% to £635 million in the six months to the start of March, as revenue rose by a quarter to £7.9 billion.
Mr Weston said: “This half-year sales and operating profit for the group returned to pre-Covid levels.
“Our people have responded well to the many challenges we faced.
“Our food businesses have once again proved their operational resilience and sugar had another strong period, building on its recent track record of recovery.
“Measures to mitigate higher costs in all our businesses have been taken and more are planned.
“Primark delivered a significant increase in sales and profit, with stores now open and trading largely free of restrictions.”
Keith Bowman, investment analyst at interactive investor, said: “In all, inflationary cost pressures are proving an increasing headache.”
Shares in the company were 3.9% lower at 1,566.5p towards the end of the day.