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The success of Primark-owner Associated British Foods in persuading shoppers to swallow price rises boosted the group’s annual revenue but it warned that high costs would persist, particularly for food.
The UK-based group, which also owns a grocery and ingredients division making products such as Kingsmill bread and Twinings tea, said that the 15 per cent increase in sales to £19.8bn in the year to September 16 was “largely due to price increases across our businesses to mitigate high levels of inflation”.
ABF’s adjusted operating profit, excluding exceptional charges, rose 4 per cent to £1.5bn while its margin declined “as expected” to 7.7 per cent from 8.4 per cent last year owing to inflationary pressures.
Chief executive George Weston said the company performed well despite “facing very significant economic challenges caused in part by major geopolitical events”.
The group had previously raised its profit outlook in June as sales first began to be lifted by higher prices.
Price increases supported sales growth both for grocery items and the fast-fashion chain. High prices are expected to persist, especially in the grocery division as the group continues to feel the effects of sticky inflation.
“I’m not seeing significant net cost reductions yet in our food businesses,” said Weston.
UK shop inflation fell to its lowest rate in more than a year in October, as homegrown food prices fell, but wholesale prices have surged since Russia’s invasion of Ukraine in 2022.
Weston warned that ABF expected wage increases to partially offset sales growth supported by higher prices and that salary rises would continue in its new financial year.
“Our shop wages in the UK have gone up by something like 20 per cent over a two-year period and I’m sure we will be paying increased wages in retail again,” he said.
Shares in ABF rose 6 per cent in early London trading, bringing the gains for the stock to more than 55 per cent in the past 12 months.
The group said Christmas shopping had started earlier than normal this year and speculated that cost of living pressures were forcing customers to spread shopping for the festive season over a longer period.
“They’re trying to manage budgets over two or three pay packets rather than just one,” said Weston.
ABF also announced a further £500mn share buyback, after its initial £500mn share buyback scheme concluded in October. The company’s final dividend of 33.1p was boosted by a 12.7 per cent special dividend, bringing the dividend increase to 37 per cent.
Primark is trying to sell clothes online for the first time and has expanded a click and collect trial to a third of its UK stores. “We’re encouraged by what we’re seeing, but we’ve still got more data to collect and more before we can analyse whether it’s a profitable venture for us,” said Weston.
The chain has opened 27 new stores this year and has begun collaborations with celebrities such as singer Rita Ora to attract more customers.
