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Primark-owner's shares slump to decade low after profit warning

·2-min read
FILE PHOTO: The retail store Primark in Birmingham, Britain reopens its doors after a third lockdown imposed in early January due to the ongoing coronavirus disease (COVID-19) pandemic

By Yadarisa Shabong

(Reuters) -Associated British Foods warned of lower profit next year, as its Primark fashion brand contends with worsening costs and increasingly cautious customers who are dealing with an income squeeze, sending shares to nearly a decade low.

Primark, one of Europe's biggest fast fashion chains, will limit price hikes next year as parent ABF said it was likely that customer's incomes will reduce further as inflation worsens.

That decision, along with soaring energy, raw material and labour costs, and a stronger dollar that have pushed up its purchasing costs, would squeeze margins at Primark, it said.

Shares in the FTSE 100 company tumbled more than 8% to nearly a decade low. They have lost more than a quarter of their value so far this year.

"This could act as a 'reality check' for the sector," said analysts at JPMorgan.

"Being a reminder that whilst the extent of the consumer demand shock might not be as bad as previously anticipated given government support, there are material margin headwinds facing retailers into the coming year."

Rising global inflation, partly due to soaring energy costs following Russia's invasion of Ukraine in February, has pressured businesses and consumers alike, forcing central banks to hike interest rates and governments to lend their support.

ABF's profit warning comes as the group's performance this financial year ending Sept. 17 improved significantly from pandemic-hit year ago figures. It kept its outlook for this year unchanged.

Total sales for Primark is expected to be some 7.7 billion pounds this financial year, about 40% ahead of a year ago.

ABF said it would consider in November whether or not it had surplus cash to return to shareholders this year.

The British company said it would take "significant" actions to cut costs, including improving store "labour efficiency".

It would also review options for its German operations in the coming months as that market has struggled to return to pre-COVID levels.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Sherry Jacob-Phillips, Edmund Blair and David Evans)