Primark enjoys sales boost but ABF set to increase food prices

Associated British Foods (ABF), the owner of fast-fashion brand Primark, has said at the half-year mark, sales and underlying operating profit at the retail chain are expected to be ahead of pre-covid levels and “strongly ahead” of last year. However, price increases are expected across its three food businesses.

The food processing and retailing company owns several well-known brands including Twinings, Ovaltine and a sugar company, and it expects Primark sales for the first half of 2022 to be more than 60% ahead of last year.

They report that impact of the surging costs of raw materials, and supply chain problems, at its Primark operation have been mostly balanced by cutting store operating costs and a favourable exchange rate with the US dollar.

ABF said that it is attempting to offset the rising costs across its three food businesses by increasing prices and other cost savings.

The Guardian quoted the company as saying: “Actions on price inevitably lag input cost inflation. As a result, we expect some margin reduction in these three businesses at the half-year but expect our plans to deliver a recovery in the run-rate of these margins by the financial year-end.”

A strong performance at Primark now that all stores are open should offset weakness in the food businesses, which have been impacted by rising costs. Underlying operating profits are also expected to continue growing in the second half.

Following the announcement, ABF shares were down 3.3%

Laura Hoy, Equity Analyst at Hargreaves Lansdown, comments on the recent news from ABF: “The escalating crisis in Ukraine continued to spook markets this morning and despite positive results, Primark parent Associated British Foods saw its share price slide along with the wider market.

“A strong showing by Primark helped ABF guide for improved sales and operating profits at the half year mark. The group’s been bogged down by inflation across all of its businesses, but cost saving efforts at its retail arm were enough to keep rising prices from denting performance significantly.

“Primark will feel the sting of inflation in the second half, but at that point price hikes in other parts of the business will be filtering through. The result is management’s unchanged optimism for “significant progress” in underlying profit growth for the full year.

“Therin lies the benefit of such a highly diverse business. ABF is best known as Primark’s parent, but the group’s also in charge of several other food-related businesses. The structure is a big part of the reason the group was able to come out of the pandemic with very few scars and is a strength that should carry it through the current inflationary environment as well.”