First half profits at John Lewis Partnership fall by 26%
- Credit: PA
The John Lewis Partnership today posted a 26% slide in half-year profits after being hit by costs of its staff pension fund and warned that full-year results would also be sharply lower amid a tough retail market.
It said trading at its Waitrose supermarket chain came under pressure amid “turmoil” in the sector, with comparable store sales down 1.3% – its first fall for seven years.
The employee-owned partnership said underlying profits fell to £96million in the six months to August 1 as recent stock market woes impacted its pension fund and left it facing higher charges.
It said that, after stripping out these costs and one-off boosts from property sales last year, trading profits were broadly level in the first half as a 3% rise in sales at its department stores chain helped offset the supermarket woes.
But it said supermarket trading was set to remain tough as the major players wage a fierce price war to compete with the increasing might of discounters Aldi and Lidl.
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The difficult trading and an extra £60m of pension fund charges this financial year are expected to drive annual pre-tax profits to between £270m and £320m, against £342.7m previously.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said: “Conditions in the market will remain difficult, especially in grocery where there is little sign of any price inflation.”
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He added: “For the full year, pension charges will be approximately £60m higher than the comparable figure last year, predominantly arising from volatility in the market-driven assumptions. In the current market, even a strong trading performance is unlikely to offset this fully.”
The warning is bad news for John Lewis workers, known as “partners”, who receive an annual bonus out of the organisation’s annual profit which was paid in proportion to their salaries.
John Lewis is also battling to plug a £1.12billion hole in its company pension fund, with recent heavy falls in equity markets hitting the fund further.
John Lewis said the deficit had shrunk by 7.4% or £92.7m since January, but its funding costs would still rise over the full year.
The group is moving to a combined defined benefit and defined contribution pension to cut its soaring costs for the scheme.
It said: “The pension continues to be one of the most important benefits offered to partners, but it also accounts for the greatest single investment made each year by the partnership.”
The half-year figures showed its 44-strong department stores business suffered a 16.3% slide in earnings to £47.1m, while shop sales excluding johnlewis.com fell 1.8%, ending four years in a row of growth.
The group said the sales fall came as it faced tough comparisons with a year earlier, when trade was boosted by its 150th anniversary celebrations.
The Waitrose arm, which has 340 stores, grew earnings by 0.6% to £135.5m as it kept a tight lid on costs, although the group said it struggled against “falling prices and changing customer shopping patterns”. Its online supermarket sales fell 13% year-on-year in the first half.
The sales fall at Waitrose, the first since the group’s 2008 interim results, comes as the entire sector struggles against tough conditions.
Half-year results also out from Big Four rival Morrisons today showed first-half profits falling 47% while like-for-like sales for the period dropped 2.7%.
Despite falling sales, Waitrose managed to increase its market share to 5.1% in the latest industry data from Kantar Worldpanel, up from 4.9% a year earlier, while its four main competitors suffered declines.
But Julie Palmer, partner at business turnaround specialists Begbies Traynor, said it has been a “difficult summer” for the John Lewis Partnership.
She added: “Today’s results from the high street retailer suggest wider concerns, with a slump in profits reflective of harsher trading conditions and higher pension charges.
“Waitrose’s poor sales performance has shown that it is not immune to the vicious price war dominating the sector.”