Primark owner expects lower profits as cost of living squeeze tightens | Associated British Foods

The owner of Primark has warned it is expecting lower profits next year as it grapples with a strong dollar, soaring costs and a probable drop in spending by cash-strapped customers.

Associated British Foods (ABF) said it expected inflation to further eat into shoppers’ disposable incomes, adding that the group was struggling with rising costs due to higher energy bills and raw material prices.

ABF said it would not increase prices at Primark “beyond those already actioned and planned”, as it attempted to protect sales.

The group also warned its finances would be hit by the stronger US dollar against the pound and euro, which had made it more expensive to purchase some of its goods. This comes amid rising labour costs and supply chain disruptions, which have been adding to a growing list of financial pressures affecting the business.

ABF said it expected adjusted operating profits and earnings per share to be lower in 2023 than the current financial year, the results of which would be released on 8 November.

The company said it had not decided whether it would have any cash to distribute to shareholders. ABF shares declined by more than 7% on Thursday morning, making it the biggest faller on the FTSE 100.

Primark has benefited from higher revenues in the UK after the end of Covid-related restrictions, which had forced its stores to close during the various lockdowns. It does not offer an online delivery service.

However, the budget fashion chain said it had experienced a drop in spending in continental Europe, where retail sales have been slightly weaker than expected.

The retailer said it would avoid raising its prices beyond the increases it already had planned over the next year, in an attempt to avert a further slowdown in spending. “We believe this decision is in the best interests of Primark and supports our core proposition of everyday affordability and price leadership,” it said.

The group also hinted at potential job cuts, saying it would try to “improve store labour efficiency” and deliver lower operating costs to offset the financial strain.

Primark said it was on track to launch the UK trial of its click-and-collect service in the run-up to Christmas, as part of its first move into online shopping.