Profits at worker-owned retailer John Lewis Partnership have fallen 99% before tax and exceptional items in its half-year results to 27 July, with chair Sir Charlie Mayfield warning: “These are challenging times in retail.”
The figure slumped to £1.2m from £83m a year earlier. Gross sales were up 1.6% to £5,486.6m, revenue rose 1.5% to £4,856.7m and profit before tax fell 80.5% to £6m, with the results in line with a warning made by the company in its strategy update in June.
Profits for the full-year would be “substantially lower”, it added, pointing to uncertainty over Brexit negotiations.
The news comes a week after the retailer launched a rebrand, accompanied by a glossy TV ad, to emphasise its partnership model. This saw the words “& Partners” added to the Waitrose and John Lewis brands.
But the Partnership also announced around 200 job cuts to its back office, with reports claiming that IT, finance and store security staff will be affected.
It also revealed that 1,838 people had been made redundant in the past year, 289% more than in the previous 12 months.
New jobs have been created – including 600 staff hired when it opened its new Westfield store in White City, London, and grew its own-label design and buying teams.
In total, there are 700 fewer employees across the group than a year ago, and it has just over 83,000 staff.
Announcing its half-year results, the Partnership said: “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.”
At Waitrose & Partners, profits were down on last year, but the report added: “From Q1 to Q2 there has been marked improvement in like-for-like sales as well as good progress in rebuilding gross margin, and we are on track for profit growth for the full year.”
With the “level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations”, the Partnership said it was hard to forecast the next six months, but that it expected profits to be down.
Sir Charlie told BBC Radio 4’s Today programme that weakness of the pound following the Brexit vote already increased costs for the business, and warned that a no-deal Brexit “would be a very bad outcome for the UK and the consequences are extremely unpredictable”.
He added that Waitrose would not be able to stockpile goods in case food deliveries from the EU were interrupted, adding: “It rots, and you waste it.”
The Partnership said there had been extra costs including investment in cyber security and data protection, but “total net debts are £700m less than last year and we continue to maintain a strong liquidity position.
“This is all consistent with our plans to ensure a strong financial position in order to invest in our strategy of differentiation at a rate of £400m-£500m per year.”