Primark owner Associated British Foods warned the sharp hike in cotton prices will hit margins at its discount fashion chain as it beat forecasts with a 25% rise in full-year earnings.
Chief executive George Weston said that Primark will not surrender its price leadership status in clothing and will take a hit to its profit margin to soften the blow for its customers from the recent doubling in cotton prices.
'We will remain the price leader, there is no doubt that we will not surrender this position. We don't expect the cotton price to affect sales growth but it will affect the margin in the short term,' Weston said.
The London-based group which markets Silver Spoon sugar, Twinings tea and Ovaltine drinks also warned about rising wheat prices, the uncertainty about the global economic outlook and the impact of VAT rises in Europe.
This prompted a cautious outlook, as the group only said it expects to see revenue and profit growth in the current year but gave no indication of the size of any increase.
The group, 55% owned by the family of chief executive Weston, posted adjusted earnings of 72.2 pence a share for the year to September 18 beating a consensus forecast of 70p.
The company also raised the full year dividend by 13% to 23.8 pence a share. Group profits were driven by continued growth at Primark, strong sugar performances in the UK and China and cost savings at Twinings, but this year higher cotton and freight costs will hit Primark and high wheat costs its breadmaking business.
Meanwhile, Britain's biggest clothing retailer Marks & Spencer reported a 17% in half-year pretax profits and said it would step up its investment in its core UK business, online and overseas.