Associated British Foods Plc said profit will rise at Primark as lower raw material and freight costs boost the performance of the low-cost fashion chain.

Primark’s adjusted operating profit margin will exceed 10 percent this year, and just how high it’ll get depends on consumer demand, owner AB Foods said Tuesday, citing a recovery. The shares rose as much as 6.6 percent to a two-year high in early trading.

Primark customers have been paying higher prices amid the biggest inflationary surge in decades, leading AB Foods to raise its guidance in June and September. The UK conglomerate gets the bulk of its earnings from the business, which is still pulling in shoppers with its cut-rate fashion.

The stock has gained more than 40 percent this year. The company said it will continue a share buyback programme, planning to repurchase an additional £500 million ($616 million) of stock.

AB Foods expects its grocery business to be stable while its ingredients unit will see a modest decline in sales and profit after a year of strong growth due to higher prices.

Primark’s adjusted operating margin was 8.2 percent for the year ended Sept. 16. An extra element that has helped the fashion company is the weakening of the US dollar versus the pound, given that the business buys its goods in dollars.

The chain lowered its prices on kidswear for the back-to-school period in September, AB Foods chief executive officer George Weston said in a phone interview. He declined to comment on whether any other products will see price reductions.

“We’ll always be the most competitive retailer on the high street and online and we’ll do whatever we need to to remain so,” said Weston.

Primark has extended its click-and-collect trial on its website to womenswear and said it’s encouraged by the results. The retailer, which had no online business before, struggled during the pandemic when it was forced to close stores for months. Since then, the chain has gradually been introducing functionality on its website, though it has yet to launch a full e-commerce site.

The retailer found it hard to sell autumn-winter clothes during unseasonably hot weather in September but as soon as the temperatures dropped, shoppers started buying more and sales have been strong ever since, Weston said.

Rival Next Plc raised its profit guidance for the fourth time last week as inflation-linked pay rises prompted people to buy more clothes.

Christmas shopping at Primark has started earlier this year as people are budgeting and spreading their expenditure more carefully, said Weston.

By Katie Linsell

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