Primark owner warns over cost pressures

Fashion chain Primark today became the latest high street retailer to warn over rising costs as it battles against higher cotton prices and tax hikes.

Primark parent Associated British Foods said full-year sales and profits at the budget clothing group were expected to be “well ahead”, but added that increases in its costs and looming VAT changes would put margins under pressure next year.

AB Foods is also fighting against soaring wheat prices at its food arm, which includes Kingsmill and Allinson bread company Allied Bakeries.

Primark's caution over the cost of cotton and freight expenses follows similar news from retail giant Next last month.

Cotton prices are running at 15-year highs as global supplies have tightened following the devastating floods in Pakistan – the world’s largest cotton grower.

Retailers are also faced with having to pass on higher VAT charges as governments act to cut their deficits.

Primark is being hit with tax increases in its two main markets, with Spain having already implemented its increase and the UK set to follow with a rise to 20% in January.

But the current year to September 18 is expected to be another robust one for Primark, with the group on course to report a 6% rise in like-for-like sales.

It is also continuing to ramp up store openings, having opened eight in the last six months to take its estate to 204.

The wider AB Foods business saw a “substantial” rise in underlying earnings during the second half.

The Allied Bakeries arm has benefited from the success of the Little Big Loaf, launched last autumn, which helped overall revenues rise modestly in the groceries division.

But AB Foods said: “The market has remained very competitive in the second half with high levels of promotional activity, and much higher wheat costs seen in recent weeks will put pressure on margins next year.”

The Twinings Ovaltine business maintained first half profits growth, largely driven by progress in North America and the UK, although Thailand is also becoming a successful market for Ovaltine after the launch of a cold drink version in recent years.

Annual results will be helped further by strong profits growth at the Silver Spoon sugar division.

More in this Section

Pound touches six-month high on Brexit optimismPound touches six-month high on Brexit optimism

Shares boost on trade talksShares boost on trade talks

Germany to avoid recession, says bankGermany to avoid recession, says bank

Not all bad news on the global economy frontNot all bad news on the global economy front


The ribbed fabric is having a fashion moment, says Katie Wright.Get on board with cord: 5 of the best pinafore dresses and how to style them

Columnist and trained counsellor Fiona Caine advises a woman whose future mother-in-law isn’t happy with her decision not to have kids.Ask a counsellor: ‘Why can’t my fiancé’s mother accept that I don’t want children?’

Vincent Thurkettle, author of The Wood Fire Handbook, talks to Luke Rix-Standing about one of our best-loved simple pleasures – the log fire.Burning love: Why are roaring wood fires so endlessly appealing?

Students have nothing to be anxious about with their CAO 2020, just follow this easy video guide with Trish McGrath, Principal of Hewitt CollegeTen tips to completing CAO 2020 applications online, plus a short video guide for students

More From The Irish Examiner