FTSE 100: Primark shelves price rises as customers face difficult choices

Customers walks with shopping bags, as retail store Primark in Birmingham, Britain reopens its doors after a third lockdown imposed in early January due to the ongoing coronavirus disease (COVID-19) pandemic, April 12, 2021. REUTERS/Carl Recine
Sales at Primark rose to £7.7bn in the 12 months to September, up 43% on a year ago. Photo: Carl Recine/Reuters

The owner of Primark has decided not to implement further price increases before Autumn 2023 beyond those already planned.

Associated British Foods (ABF.L) said that, as customers face tough choices on "what they spend and where they spend it", it wants to make sure they still see the brand as a cheap alternative to other high street retailers.

AB Foods reported a 49% rise in profits to £1.4bn ($1.6bn), with the retail chain’s surplus more than double the previous year at £756m.

Chief executive George Weston said: “Primark has faced significant input cost inflation and sharply moving currency exchange rates.

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“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 business said the decision is “in the best interests of Primark”, which will support its “everyday affordability and price leadership” and help it grow market share.

Sales at Primark rose to £7.7bn in the 12 months to September, up 43% on a year ago.

AB Foods, which also has sugar, agriculture and ingredients divisions, unveiled plans for a fresh £500m share buyback and announced an 8% increase in dividends to 43.7p per share.

Richard Hunter, head of markets at Interactive Investor, said: “Its operating profit margin of 9.8% is above expectations, while the strength of trading at its UK stores has more than offset a weaker performance in Europe, where consumer confidence has dragged.

“AB Foods is mindful of the mood music, and has decided to make no further price increases in its stores in addition to the ones already announced for the next two shopping seasons.”

Primark like-for-like sales have broadly returned to pre-COVID levels in the UK, but remain weaker in continental Europe.

For the year ahead, AB Foods expects significant sales growth across the business, but expects a fall in adjusted operating profits and adjusted earnings per share, due to higher costs.

Richard Lim from Retail Economics consultancy said: “These are impressive results against the harsh economic backdrop.

Read more: Primark to cut 400 jobs in UK stores

“The retailer is well-positioned to benefit from consumers who are trading down and putting lower costs at the heart of their buying decisions.

“Many shoppers are prepared to sacrifice perceived quality and the convenience of online delivery for lower costs and it’s driving people back into stores across parts of the sector.

“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.”

The food business is expected to grow sales significantly this year as it hikes prices for customers, and AB Foods will also bring in some extra cash from the already planned price rises at Primark.

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