Primark owner takes £1bn inflation hit but holds off more clothing price rises | Associated British Foods

Primark’s owner has taken a £1bn hit from increased inflation this year and said rising costs and a weak consumer backdrop would be challenging in the coming months.

Associated British Foods said it had “encountered the most challenging economic conditions for many years with sharply rising and broadly based inflation”, with inflation adding £1bn in costs across the group this year.

Despite inflationary pressures, ABF said no further price rises were planned at Primark, at a time when households are facing soaring food and energy bills and shrinking disposable incomes.

George Weston, the ABF chief executive, said: “Looking ahead, substantial and volatile input cost inflation will be the most significant challenge in the new financial year, and our businesses will continue to seek to recover these higher costs in the most appropriate way. Primark has faced significant input cost inflation and sharply moving currency exchange rates.

“We have decided to hold prices for the new financial year at the levels already implemented and planned and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates.”

The latest monthly spending survey by Barclaycard, which accounts for about 50% of all debit and credit card transactions, found that half of consumers were planning to cut back on presents, food and drink, and socialising this Christmas.

ABF revenues climbed 22% to £17bn in the year to 17 September, while pretax profit rose 48% to £1.07bn.

Primark recorded total sales of £7.7bn, 43% better than last year, as UK like-for-like sale and market shares caught up with pre-pandemic levels. Sales in continental Europe, where the total apparel market is still well below pre-Covid levels, were weaker. Trade was affected by the long heatwave and sales have improved in many markets as the weather got colder. Primark has launched a new UK website and a click-and-collect trial in 25 UK stores.

Richard Lim, the chief executive of Retail Economics, said: “The retailer is well positioned to benefit from consumers who are trading down and putting lower costs at the heart of their buying decisions.

“However, there’s a perfect storm of cost pressures facing the retailer from spiralling input and operating costs and the impact of a weaker pound and rising interest rates … It’s inevitable that margins will be hit, but they are likely to weather the storm better than most with a value-driven proposition and diversified business as the economy enters recession.”

Shares in ABF rose nearly 5% on Tuesday morning, making it the top riser on the FTSE 100.