By Geoffrey Smith
Investing.com -- Shares in Associated British Foods (LON:ABF) fell sharply on Tuesday after it warned that it would have to raise prices at its discount fashion chain Primark.
"Inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock," AB Foods Chief Executive George Weston said in a statement accompanying the company's fiscal first-half results.
Primark primarily serves a lower-income market segment that is acutely vulnerable to the ongoing cost-of-living crisis in the U.K., caused by a potent cocktail of soaring energy bills, a 30-year high in overall inflation and the imposition of higher national insurance contributions. As such, price hikes tend to have a relatively direct impact on sales.
The news overshadowed a broadly positive six months through March and the reiteration of an upbeat message for 2022 as a whole. Sales and operating profit returned to pre-pandemic levels and Weston said the company still sees "significant progress in adjusted operating profit and adjusted earnings per share." The interim dividend more than doubled to GBP 13.8 a share.
Basic earnings per share almost tripled from a year earlier, a reflection of the group's sensitivity to lockdown measures. Primark has a minimal online presence, making it more dependent than many of its rivals on its physical stores, which were nearly all closed a year earlier. That strategic weakness has been one of the reasons for the stock's alarming underperformance in recent months. By 5:15 AM ET (0915 GMT), it was down 5.0%, testing the nine-year low that it posted earlier in April.
ABF said footfall remained weak in its continental European markets, but was strong in the U.K. and Ireland and positive in the U.S.
Its other division, sugar, saw revenue rise 6% on the year but operating fall 9% due to higher operating costs which it couldn't wholly offset. More cost savings are planned for the division, the company said.