The owner of the clothing retailer Primark said annual profits would be higher than previously expected after Britons started shopping early for the summer and as inflation eased.
Associated British Foods (ABF) said people were planning for their holidays despite the cost of living crisis, with strong sales of luggage and beachwear such as sunglasses, swimwear, beach footwear and even shorts.
John Bason, ABF’s finance director, said the company had seen an increase in sales of luggage and “people buying for hot summer holidays – and they’re doing it in January”.
It expects group sales to rise 20% for the six months to early March compared with last year, helped by a 19% increase in sales at Primark, according to a trading update on Monday. The company now expects annual profits to be roughly in line with last year’s. It had previously expected them to be lower on fears Primark trading would be hit by a weaker consumer backdrop.
ABF, which has products ranging from Twinings tea to animal feed and clothing, had previously warned that higher prices of energy and commodities such as cotton would weigh on its profits and could cause a downturn in consumer spending. However, it reported stronger-than-expected trading at Primark at Christmas, helped by sales of heels, baggy suits and knitwear, and said on Monday that some of the pressures had eased.
“Inflation has become less volatile and recently some commodity costs have declined,” ABF said, although it is still trying to “recover” inflation by raising prices for customers where possible.
Bason said he thought many costs were still high but the pace of increases appeared to be peaking. The cost of shipping by sea has returned to more normal levels after disruption following the coronavirus pandemic lockdowns, while energy costs have also fallen back after rising during 2022 after Russia’s invasion of Ukraine.
Trading at Primark was “good in all its markets, well ahead of expectations”, and the company expects profit margins of more than 8% for the period, it said in the statement. Primark’s improved performance contrasted with late 2021 and early 2022, when the Omicron Covid-19 variant disrupted sales.
“We haven’t seen a big drop-off in consumer spending,” Bason said. “We’ve seen a big increase in our footfall.
“Because people are out and about, we’ve seen an increase in people buying clothing to socialise. Fashion is back. People want something new.”
However, ABF also warned about the possibility of lower consumer spending in the months ahead. While recent economic data suggests the UK may just avoid a recession in the first half of this year, some economists are doubtful that consumers will continue to spend at the same rate as interest rates rise and government energy price support ends.
ABF said: “Macroeconomic headwinds for the consumer remain and may weigh on spending in the months ahead. At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates.”
Bason said there had been some signs that shoppers were being “careful on where they spend, and what they spend on”, with smaller average basket sizes and people buying more of Primark’s cheaper items.
In its other businesses, ABF said a smaller beet crop in the UK would dent its second-half profits from sugar production.
