Profits at the John Lewis Partnership have plunged to almost zero in the first half of the year, with the department store chain blaming the fall on heavy discounting by rivals and the cost of new stores.
The company, which owns a string of department stores and the Waitrose supermarket chain, have revealed profits for the six months to July 28, 2018 sank by 99% compared to last year to £1.2m.
During the first half of the year the John Lewis Partnership has been squeezed by its pledge to match rival’s prices on a fiercely competitive high street.
As such the John Lewis department store division took the biggest hit, falling to a £19.3m first-half loss compared with a £54.4m profit a year before as its “never knowingly undersold” price matching promise was stretched by the highest level of discounting by competitors in almost a decade. Sales increased by 0.8% to £2bn.
John Lewis Partnership chairman Sir Charlie Mayfield says of the results: “These are challenging times in retail. 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.
“Profits before exceptionals are always lower and more volatile in the first half than the second half. It is especially so this half year, driven mainly by John Lewis & Partners where gross margin has been squeezed in what has been the most promotional market we’ve seen in almost a decade. The pressure on gross margin has predominantly been from our 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. Gross margin was also affected by a sales mix shift towards electronics rather than big ticket items in Home. In addition, John Lewis & Partners profits were impacted by the costs of new shops and higher IT costs as we continued to invest for future growth, and from lower property profits compared to last year.”
Looking ahead, the John Lewis Partnership expects its full-year profits to be “sustainably lower” than last year.
Mayfield shares: “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.
“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. We are continuing with our plans for the future in this half and have great confidence in the attractiveness and potential of our offer across Waitrose & Partners and John Lewis & Partners as we approach the final quarter.”