Primark profit margins to be hit by high energy costs and shoppers’ budget worries
Primark owner Associated British Foods said it expects the retailer’s profit margins to take a hit next year due to rising energy costs.
In a trading update on Thursday morning, the retailer said it anticipated Primark’s profit margin to be lower than expected as the budget-chain has opted to limit further price hikes.
ABF acknowledged “declining disposable income” for shoppers due to historically high levels of inflation.
It said it expected total sales for this financial year to be some £7.7bn for its retail arm,, 40 per cent ahead of reported sales last year. Shoppers returned to stores after Covid measures were eased and social occasions have returned.
The retailer said it would not introduce further price rises next year “beyond those already actions and planned” to support its affordable position in the market.
The fashion chain previously said it would make “selective” rises in its current seasonal range.
ABF’s share price was down eight per cent on Thursday afternoon.
The retailer has previously “managed to bat away these pressures pretty adeptly,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown noted.
However, its reluctance to pass on input pressures to consumers places makes its margins and profits vulnerable.
Known for cheap apparel, Primark “clearly doesn’t want to put its value tag at risk” as retailers vye to retain shoppers looking for affordable items.
Its food arm was expected to post profit ahead of this year “with further significant input cost inflation and pricing action