Penneys: Cost of cotton won’t hit prices

BUDGET retailer Penneys says that clothing prices will not rise despite the soaring cost of cotton.

The company, which trades as Primark in Britain, said its profits will be hit by rising commodity prices as it wants the clothing retailer to keep its competitive edge on the high street.

Operating profits at Primark rose slowly in the first half of its financial year. They were up just 5% to £151 million (€170m) against a 35% improvement in 2010.

Like-for-like sales rose 3% — half the level achieved during its previous financial year.

The company said first half margins were impacted as it absorbed the January VAT increase and higher cotton costs.

It also said profits would be lower than expected in the second half of the year as it focuses on sales growth by keeping prices low.

Charles Sinclair, chairman of Primark parent company AB Foods, said: “We are determined that Primark will retain its position as price leader and margins in the second half will be lower than previously planned.”

In the grocery market, AB Foods, whose brands include Kingsmill bread and Twinings tea, said it was continuing to hike prices across its grocery arm to offset cost pressures, which is leading to higher prices in supermarkets.

Goodbody analyst Liam Igoe said management has some positive comments with regard to the company’s agriculture division, which reported strong results.

“This reflected UK feed revenues which were ahead in all sectors driven by commodity price increases and growth in feed enzyme products, and speciality feeds and nutrition,” he said.

Rising prices helped returns in the company’s agricultural business. Sugar prices are at the highest for 30 years, a result for its Silver Spoon brand.

Overall at AB Foods, revenue was up 9% to £5.2bn, while profits rose 7% to £353m.