The John Lewis Partnership has revealed half-year profits crashed 98.8% as it battled against “challenging times” and the most promotional market for nearly a decade.
The owner of the department store chain and supermarket Waitrose posted underlying pre-tax profits of £1.2 million for the six months to July 28.
It said profits at John Lewis & Partners have continued to be squeezed by strong competition as it moves to keep prices low despite inflation and has offered “unprecedented” levels of price matching through its Never Knowingly Undersold pledge.
The group reiterated warnings that it continues to expect profits in the full 2018-19 financial year to be “substantially lower”.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said: “These are challenging times in retail.”
He added the group was seeing the “most promotional market we’ve seen in almost a decade”, with other retailers discounting heavily.
“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,” he warned.
Responding to comments from Brexit Secretary Dominic Raab intimating that John Lewis is blaming Britain’s EU divorce for its woes, Sir Charlie said: “This whole thing is so frothy. I didn’t say Brexit was the reason for our result.
“The fact is sterling is weaker, it’s more expensive to import goods… so we have to absorb that within our margin.
“I’m not going to get into some sort of ding-dong with the secretary of state for all things EU.”
The firm – which recently rolled out the & Partners rebrand across the group – had alerted over profits at a strategy update in June, when it also said it would shut another four Waitrose convenience shops and a small supermarket, affecting around 200 staff.
The half-year results showed on a statutory basis, pre-tax profits slumped 80.5% to £6 million.
John Lewis department stores slumped to an underling operating loss of £19.2 million from earnings of £54.4 million a year earlier.
Like-for-like sales at the chain fell 1.2%.
This offset a better performance at Waitrose, which remained in profit albeit down 12.2% at £96.4 million on an underlying basis.
Like-for-like sales rose 2.6% at the supermarket, thanks to a marked improvement in the second quarter, with the grocery chain on track for a full-year trading profit.
Sir Charlie said the group expects profit growth in Waitrose to continue to be offset by the squeeze at John Lewis.
But he pledged to continue with plans to invest in the group – at a rate of £400 million to £500 million a year – despite the pressures on its profits to drive long-term growth.
“This will take a lot of hard work from all of our partners, but we are confident in our commitment, drive and ability to deliver the partnership’s strategy,” he said.
The chairman also said that the harsh retail climate has been a “test” for the Partnership’s price matching scheme, Never Knowingly Undersold.
“If you think about the value it has in terms of trust with the customer, it’s extremely valuable, has proven to be so over many years. Times like these test the real integrity of that promise.
“It’s the most transparent market that we’ve ever known, the ability to price compare has never been greater. If you’re a long-term business like ours which has a relationship with the customer, having a commitment to good value and pricing is a foundational point in that.”
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