Penneys says it is not raising prices despite cost hikes

James Davey, Reuters

The owner of Penneys has said it is not raising prices for shoppers as it pledged to swallow sharp increases in labour costs.

It came as Associated British Foods reported a 10 per cent fall in first-half profit on Tuesday, hurt by a loss in its sugar division, sending its shares down 8 per cent in early trading.

The group however kept its guidance for "low single digit" annual growth at its Primark clothing unit, which trades as Penneys in the Republic.

The predicted growth in Primark will be driven by new stores in continental Europe and the United States, offsetting weaker sales in the UK and Ireland.

Sales at Primark, whose boss Paul Marchant resigned last month over inappropriate behaviour, rose 1 per cent to £4.5 billion (€5.3 billion).

George Weston, chief executive of AB Foods, told the PA news agency that it is witnessing "significant" increases in labour costs but plans to keep prices flat.

"We went nine years without moving prices before inflation forced us to change pricing a couple of years ago, but since then we have brought down the price of kids’ clothing," he said.

"We haven’t moved any more prices and are absolutely not planning to move any more.

"Hopefully we can keep them flat for another eight or nine years.

"There has been some benefit from weakness in the US dollar and benign cotton costs, but there are labour cost rises which we are choosing to absorb."

AB Foods said it expected its sugar business to make a full-year adjusted operating loss of up to £40 million, reflecting persistent low European sugar prices, a loss at its UK bioethanol business, Vivergo, and challenges in Tanzania and South Africa.

It said it was close to completing a review of its Spanish sugar business Azucarera, and it was considering mothballing or closing the Vivergo plant unless there were changes to UK bioethanol regulations.

The group maintained guidance for its grocery, ingredients and agriculture businesses.

It said adjusted operating profit, its preferred profit measure, was £835 million pounds in the six months to March 1st, on flat revenue of £9.5 billion on a constant currency basis.

Shares in AB Foods fell 8 per cent, wiping out most of the 10 per cent gain recorded so far this year.