John Lewis drops staff bonus after half-year loss
John Lewis will drop its famous staff bonus next year after reporting a £55m loss before tax, which escalated to £635m for the six months to 25 July, after being impacted by a £470 million write-down on its stores.
Dame Sharon White, chairman of the partnership, made the announcement this morning and said that while total trading sales were up 1% year-on-year to £5.56bn – a performance she described as "creditable" under the circumstances – customers had been buying more of less profitable items such as laptops and toilet roll.
She also revealed that online sales had accounted for 60% of total sales, having been 40% before lockdown. Online sales growth rocketed by 73% helping to offset the impact of shop closures, with overall sales down 10% on last year.
"The pandemic has brought forward changes in consumer shopping habits which might have taken five years into five months. Both brands entered the crisis with strong and established online businesses and in the case of Waitrose, plans for expansion well underway in preparation for the end of the relationship with Ocado. Our digital businesses, powered by Partners, have been key to underpinning our first half performance," Dame Sharon said.
The first half performance includes Government support of £55m of furlough money and £51m from the business rates holiday. This was set against lost trade from the closure of the John Lewis shops, which it estimates at over £200m of sales, as well as additional costs related to the pandemic of around £50m, including the cost of providing safety equipment, extra donations to charities and local communities, and increased benefits to its staff.
Dame Sharon said the company was in a strong cash position with £2.1bn cash and facilities available, mainly down to new borrowings. It is, however, its debt ratio - total net debts as a proportion of our cash flow - to worsen from 3.9 times - the position in January this year. It is expected to return to under 4 times in two to three years and the company is targeting a level of around 3 times in the medium term.
She added that sales momentum was beginning to improve at stores with sales down roughly 30% year on year, which was better than expected. The business is in the process of closing 8 of its 50 John Lewis stores permanently and yesterday announced the closure of three Waitrose stores and the sale of a further Waitrose store to Tesco.
"Early weeks of trading have been encouraging in both brands. In John Lewis our new Home collection has launched and a bigger revamp for this key category is set for next spring. Services previously only available in store - personal and home styling, beauty and nursery advice - can now be accessed online as well and take-up is high," Dame Sharon said.
Meanwhile she confirmed that the board had recommended that there would be no bonus for staff next March given the profit outlook. The last time no bonus was paid was in 1948 when the business was recovering from the Second World War.
"Outside of exceptional circumstances, we would now expect to begin paying a bonus again once our profits exceed £150m and our debt ratio falls below 4 times. Once our profits rise above £300m and a debt ratio below 3 times, we would expect to pay a bonus of at least 10%," Dame Sharon said.