Higher cotton prices in store for Penneys
THE parent company of the discount fashion chain Penneys said yesterday margins were likely to come under pressure as higher cotton prices take a toll on the business.
Primark, as Penneys is known outside of Ireland, had "an exceptional year", said Associated British Foods (ABF) chief executive George Weston, but he warned that improved margins could be lost next year due "due to higher cotton prices, freight costs and increases in VAT, already implemented in Spain and planned for the UK in January".
He added: "We will remain the price leader . . . we don't expect cotton prices to affect sales growth but it will affect the margin in the short term."
While Primark increased operating profits by 35pc across its operations, growth was impacted in Ireland by "the weak economy".
Overall, ABF, which counts Twinings Tea among its numerous brands, said that profit before tax for the 53 weeks ended September 18, 2010 increased 26pc to £825m (€955m) on the back of group revenue that rose 10pc to £10.2bn, comfortably beating market expectations. Those figures translated into adjusted earnings per share of 72.2p -- an increase of 25pc.
Davy Stockbrockers' John O'Reilly was bullish on ABF's results. "Despite headwinds which include austerity budgets, VAT rises and raw material cost increases, ABF states it expects to achieve revenue and profit growth in the coming year," he said.
"It believes that the contribution of investments made and under way will mitigate the prospective effect of headwinds. The balance sheet is in great shape to fund the plentiful opportunities for investment which it says exist."