The owner of Primark has warned it is expecting lower profits next year as it grapples with a strong dollar and soaring costs that have pushed the fast-fashion retailer’s annual energy bills up by about £100m.
In previous years Primark has faced an increase in energy bills of about £10m, but this year it has been 10 times that figure, said a spokesperson for its parent company, Associated British Foods (ABF).
The group said surging inflation was also expected to eat into shoppers’ disposable incomes, and that the company was struggling with rising prices of raw materials.
However, ABF said it would not increase prices at Primark “beyond those already actioned and planned”, as it attempted to protect sales.
The group also warned that its finances would be hit by the stronger US dollar against the pound and euro, which had made it more expensive to purchase some of its goods. This comes amid rising labour costs and supply chain disruptions, which have been adding to a growing list of financial pressures affecting the business.
ABF said it expected adjusted operating profits and earnings per share to be lower in 2023 than the current financial year, the results of which would be released on 8 November.
The company said it had not decided whether it would have any cash to distribute to shareholders. ABF shares declined by more than 7% on Thursday morning, making it the biggest faller on the FTSE 100.
Primark has benefited from higher revenues in the UK after the end of Covid-related restrictions, which had forced its stores to close during the various lockdowns. It does not offer an online shopping service.
However, the budget fashion chain said it had experienced a drop in spending in continental Europe, where retail sales have been slightly weaker than expected.
The retailer said it would avoid raising its prices beyond the increases it already had planned over the next year, in an attempt to avert a further slowdown in spending. “We believe this decision is in the best interests of Primark and supports our core proposition of everyday affordability and price leadership,” it said.
It would mean keeping annual price increases in the “mid- to high single digits” in the year to August 2023, its finance chief, John Bason, said. “Our price point and our competitive position is really important to us.”
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Bason said he welcomed news of the energy price cap announced by Liz Truss’s government on Thursday, which aimed to ease pressure on household finances. “We cannot overstate the pressure the uncertainty has had on individuals’ behaviours. So I think today’s announcement should be … warmly welcomed.”
The finance chief denied the company was considering potential job cuts, saying plans to “improve store labour efficiency” and deliver lower operating costs would more likely result in reducing the number of hours promised to workers on temporary contracts.
Primark said it was on track to launch the UK trial of its click-and-collect service in the run-up to Christmas, as part of its first move into online shopping.
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