Associated British Foods (AB Foods) is expecting a significant increase in sales and profit at its Primark fashion chain in its new financial year, sending its shares sharply higher.
According to the group, it expects the fashion chain to increase its sales by at least the estimated 2 billion pounds ($2.7 billion) with its adjusted operating margin, recovering to over 10%. While revenue and profit fell 5% and 11% in 2020-21.
AB Foods commented that Primark is currently facing the challenges of the supply chain crunch, labour rate inflation, and raw material cost.
However, the fashion business is particularly expecting the impact of the above challanges to be broadly alleviated by the transaction currency gain that will arise from the weaker U.S dollar, improved store labour efficiency, and lower operating costs.
The group, which also has major sugar, grocery, ingredients, and agriculture operations, mentioned that in addition to the impact of port congestion and road freight limitations, it has been noticing significant cost increases in energy, logistics, and commodities.
The group is said to have been working to offset the impact of these through cost savings. And wherever necessary, its food businesses will also implement price increases.
According to reports, in the 53 weeks to Sept. 18, the company had made adjusted earnings per share of 80.1 pence and adjusted operating profit of 1.01 billion pounds, both down 1%. While expects “significant progress” in 2021-22 on both measures.
The company after its balance sheet is expected to pay a special dividend and cash flow recovered from the hiatus of the pandemic.
The group’s finance chief, John Bason commented that for the Christmas trading period Primark’s fashion business has good stock availability and it will not be raising prices despite supply chain disruption and inflationary pressures.
Although he mentioned that there would be limited stock cover on a small number of Primark lines.
He has pledged that the fashion brand’s prices for autumn/winter stock would be flat in comparison to the 2020-21 year. It has been able to take such a stance as the business was benefitting from transaction currency gains as mentioned earlier.