John Lewis profits drop 99% during first half
Written by Peter Walker
John Lewis Partnership has reported a 98.8 per cent fall in underlying pre-tax profits to £1.2 million for the six months to 28 July.
The results came despite gross sales rising 1.6 per cent to £5.5 billion, while revenue increased 1.5 per cent to £4.8 billion.
Profit before tax fell 80.5 per cent to £6 million while total net debts were £700 million lower than the same period a year before.
“These are challenging times in retail,” stated chairman Sir Charlie Mayfield. “Our profits before exceptionals are in line with what we said they would be at our Strategy Update in June,” he added.
“We’re continuing to improve our offer for customers while ensuring we have the financial strength to continue developing our business going forward. This is reflected in both brands continuing to grow sales and customer numbers, and our total net debts reducing.”
Mayfield noted that profits before exceptional items are always “lower and more volatile” in the first half than the second, especially where gross margin has been squeezed “in what has been the most promotional market we’ve seen in almost a decade”.
He blamed this pressure on a commitment to maintain price competitiveness. “This reflects our decision not to pass on to our customers all cost price inflation from a weaker exchange rate and from our Never Knowingly Undersold promise, where we have seen an unprecedented level of price matching as other retailers have discounted heavily.”
Fashion sales rose 1.2 per cent in the six months to the end of July, outperforming the wider market due to market share gains in womenswear, where sales were up 4.1 per cent. Home and technology sales were also ahead of the market, while electrical sales rose 7.8 per cent. Home sales dropped 4.2 per cent though, due to a fall in demand for big ticket and bespoke items.
For Waitrose, gross sales rose 2.1 per cent and like for like sales excluding fuel were up 2.6 per cent.
Mayfield warned: “With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year for the Partnership as a whole.”
David Brewis, chief marketing officer at Amplience, argued that faced with competition from online retailers with huge product ranges, it's difficult for these department stores to continue with a traditional approach to retailing.
“But this doesn't mean that the department store must disappear from the British High Street,” he continued. “Remaining stores need to make more impact on potential customers by becoming experiential branded spaces which reflect and enhance the retailers online offering.”