The owner of Primark has warned the clothing chain will have to raise prices on its autumn and winter ranges as it is no longer able to offset cost increases with savings.
Associated British Foods (ABF) said its food businesses, which include Twinings, Kingsmill and Ryvita, face increasing inflationary pressure in many areas including raw materials, commodities, energy and supply chain costs made worse by the war in Ukraine.
“We have not seen such a scale of inflation in our major markets in recent times,” the company said in its half-year statement issued on Tuesday.
ABF said it expected profit margins would be hit by more than expected at both Primark and its food businesses over the coming months and it did not expect a recovery until next year.
George Weston, the chief executive of ABF, said the group was taking measures to mitigate rising costs across the business but he added: “Looking further ahead, 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.”
The warning comes after Primark increased sales by 64% year on year to £3.5bn in the six months to 5 March, as it was able to keep nearly all its stores open throughout the period after a series of high street lockdowns around the world during the earlier stage of the pandemic.
Primark said it had rung up strong sales of luggage and holiday kit such as swimwear and sandals as its customers began travelling for holidays again. Health and beauty sales also recovered, with false eyelashes and nails performing particularly well from the revival of socialising. However, sales for the period remained 10% below those before the pandemic.
Despite rising cost pressures, operating profit margins returned to pre-Covid levels as shoppers flooded back to stores and it benefited from a favourable exchange rate with the dollar, which is used to pay many suppliers.