John Lewis half year profit slumps 99% in "challenging market"
John Lewis has posted pre-tax profits before exceptional items down by almost 99% to £1.2m in the six months to 28 July on gross sales up 1.6% at £5.49bn. The results reflected the comments given by the retailer's chairman Sir Charlie Mayfield back in June when he said he expected profits for the first half of the year would be "close to zero".
Revenue was up 1.5% at £4.86bn while profit before tax was down 80.5% at £6m. Mayfield pointed out today that pre-tax profits before exceptional items were always more volatile in the first half of the year and they had been even more so this year due to "what has been the most promotional market we’ve seen in almost a decade".
When Waitrose figures are removed, the John Lewis department store achieved revenues of £1.66bn during the period, up 0.7%, while operating profits before exceptional items were showing a loss of -£19.3m, compared to a profit of £54.4m this time last year.
The struggles at rival department stores has meant that John Lewis has had to keep up with wide and deep discounting across the high street as a result of its Never Knowingly Undersold pledge. It described the level of price matching required as "unprecedented".
On the plus side, the business which has been investing heavily in improving in-store experiences, in IT infrastructure, and in a new brand which has seen it add the & Partners suffix to the John Lewis name and that of its department store Waitrose, has reduced its debts with net debt at £404m (£17m lower that at July 2017).
“These are challenging times in retail. Our profits before exceptionals are in line with what we said they would be at our Strategy Update in June. 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 said.
Looking forward Mayfield said that due to continued uncertainly surrounding the Brexit negotiations, and the impact on consumer confidence and the economy, he expected "full year profits to be substantially lower than last year for the Partnership as a whole. We expect profit growth in Waitrose & Partners will be offset by the continuing margin pressure in John Lewis & Partners and by incremental costs of investment."
He said the business was pressing on with plans to bring greater differentiation to its offer with more focus on exclusive and own-brand products, such as the recently announced John Lewis & Partners womenswear line which is a major part of its plan to build a £500m own-brand fashion business. Fashion sales were up 1.2% during the period, which was an outperformance of the market as a whole, with own-brand particularly strong at up 12.3%.
It also recently announced an exclusive partnership with US giant J Crew to expand its main line and sister line Madewell in the UK through concessions within John Lewis stores, while further partnerships have been struck with Stuart Weitzman on footwear and Proenza Schouler in beauty.