Tough trading conditions squeeze profits at John Lewis
FIRST half sales grew strongly at the John Lewis Partnership but the retail group still saw a marked drop in profits during the period, new figures show.
The partnership, which is working on a £250m flagship store at Birmingham’s New Street Gateway, recorded gross sales of £4.05bn in the six months, an increase of 6.4% (£244m) on the same period last year.
However, operating profit was down 23.2% (£33.7m) at £111.5m. Together these represent an operating profit margin of 2.75% (2010/1: 3.81%). Pre-tax profit was £90.4m, a decrease of £20.1m, or 18.2%, on last year.
The partnership said sales in both Waitrose and John Lewis grew well ahead of their respective markets. Waitrose has now been the fastest growing supermarket for over two years and John Lewis gained market share in three key areas: electrical and home technology (EHT), fashion and home.
The share of the Home market could increase further during the second half and beyond with the opening next month of a new store in Tamworth.
Charlie Mayfield, partnership chairman, said: “We have often said we are a business with a long-term outlook. Our sales momentum today has much to do with decisions taken to invest during similarly difficult market conditions in 2008 and 2009.
“Our profit performance in the first half reflects not only the extremely challenging trading conditions, particularly in John Lewis, but also the significant investments we are making to accelerate growth and to seize the opportunities created by the structural shifts in how customers are shopping.”
Capital expenditure increased by £99m to £254m in the first half. The period saw the opening of 16 new shops compared with nine last year, adding 220,000 sq ft of new space.
In the convenience market, it continued the roll-out of Little Waitrose with eight more shops opening and 12 more planned in the second half. The partnership has recently announced to open one of these format stores in Colmore Row in Birmingham city centre.
Looking ahead, the partnership said that in the first six weeks of the current period, gross sales were 7.4% higher than last year. Waitrose gross sales have increased by 10.0% (3.9% like-for-like) and John Lewis gross sales are 3.2% higher than last year (1.9% like-for-like).
“Trading conditions are set to remain challenging through the rest of this year and into 2012. There are huge changes taking place in the way people shop as a result of technology reaching every part of our lives, and there is an ever greater demand for convenience and value,” added Mr Mayfield.
“We are not simply waiting for the recovery, but instead we have increased the pace of investment and innovation across the partnership putting us in the best possible position to seize the opportunity created by a rapidly changing retail environment. Our momentum is strong and I am confident we will build on that in the second half.”
