Half year results from the John Lewis Partnership show Waitrose had a tough period, although sister chain John Lewis continued to outperform its rivals.
In what the group described as a “challenging” market, like-for-like sales at Waitrose fell 1% in the six months to 30 July. However, gross sales increased by 2.2% to £3.25bn with the chain making market share and customer number gains. Online grocery sales grew by 4.3%.
Waitrose’s operating profit before exceptional items was down 10.5% to £121.3m. This was blamed not only on the impact of the market conditions but also on increases in staff pay, investment in IT and higher supply chain costs following the transition to its new National Distribution Centre operation.
Waitrose opened seven new stores in the first half of the year, five core supermarkets and two convenience outlets.
The group revealed that hospitality sales grew by 7.1% and it now has 121 cafes, 81 bakery grazing areas, seven wine bars and nine juice bars in its stores. Meanwhile, its new Waitrose 1 range helped lift sales of premium products by 19.4% on last year.
At the John Lewis department stores, gross sales rose 4.5% to £2.02bn with strong like-for-like sales growth of 3.1%. However, despite the growing sales, the chain’s operating profit fell by 31.2% to £32.4m, with more than half of this decline due to transitioning costs in its distribution network as it temporarily maintained legacy sites to smooth the transition to its new Magna Park DCs.
Overall group pre-tax profit plummeted 74.6% to £56.9m, mainly due to charges for the write-off of Waitrose sites it no longer intends to develop, following a strategic review. Excluding exceptional items, profits were down 14.7% to £81.9m.
Meanwhile, the group said the EU referendum result had not had an real impact on sales so far, but it expected “trading pressures” to continue into 2017 and that the structural changes in retail will not ease.
For the first six weeks of the second half, trading at Waitrose picked up with like-for-like sales growing 1.4%. However, like-for-like growth at John Lewis slowed to 0.7%.
Sir Charlie Mayfield, Chairman of John Lewis Partnership, commented: “We have grown gross sales and market share across both Waitrose and John Lewis, but our profits are down. This reflects market conditions and, in particular, steps we are taking to adapt the Partnership for the future. These are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far. Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater implications.”
- Where at: Waitrose appear to have taken a write-down hit now, in readiness for what could be a tough Christmas trading period and continuing structural pressures beyond.
- Where headed: In better condition than most, this profit-sensitive partnership is poised to optimise consumer demand.
- Impact on you: Expect both John Lewis and Waitrose to require supplier-partner assistance in optimising performance.
- Action: Aim for fair sharing of costs of helping both divisions maintain the life-time value of their unique customer-base.