The John Lewis Partnership has confirmed that it will not pay its staff their annual bonus for the first time since 1953. The announcement came alongside half-year results which showed the group had plunged to a £635m pre-tax loss after being impacted by a £470m write-down against the value of its department store estate due to the shift to towards online retailing.
Total trading sales for the six month period to 25 July edged up 1.1% to £5.57bn after strong performance by Waitrose offset weakness in the John Lewis chain which was hit hard by store closures during lockdown. Before exceptional items, pre-tax losses increased from £52m to £55m, which was described as a “creditable performance” in the circumstances and ahead of expectations in its update back in April.
Chairman Sharon White, who has been working on a turnaround plan for the business since taking on the role at the start of the year, had already previously warned that the Partnership might not pay the renowned bonus as competition ate into profits. However, she said today’s decision “will come as a blow to partners who have worked so hard this year”.
White outlined that the Partnership would only begin paying a bonus again once annual profits exceeded £150m and the group’s debt ratio fell below 4 times. Once profits rise above £300m and a debt ratio is below 3 times, the group is promising to pay a bonus of at least 10%.
Other the half-year period, trading profit at Waitrose rose 10.6% to £586m on sales up 7.6% to £3.71bn. This followed a 9.6% rise in like-for-like sales, buoyed by stockpiling at the height on the pandemic. The group also highlighted the surge in demand for its online grocery services during the period, added that it had seen “a strong pick-up in demand” since its supply agreement with Ocado ended on 1 September, with orders on waitrose.com up 9% in the first week.
Meanwhile, trading profit in the John Lewis division plummeted 46.3% to £153m on total trading sales down 9.7% to £1.86bn. Like-for-like sales slid 9.5% following the prolonged closure of its stores during lockdown. However, the group saw online sales surge up 73% with White suggesting that the pandemic had brought forward changes in consumer shopping habits “which might have taken five years into five months”.
The group revealed that sales in reopened department stores are still down around 30%, whilst online now accounts for more than 60% of sales overall, up from 40% before the pandemic hit. This led to the Partnership’s decision to reduce the book value of its John Lewis shops by £470m.
Looking ahead, White said the outlook for the second half is “clearly uncertain given the broader macroeconomy”. She highlighted the importance of Christmas trade, which generates a large chunk of the profits for John Lewis.
In April, the group set out a worst-case scenario for the full year of a sales fall of 5% in Waitrose and 35% in John Lewis. White stated that this remains its worst-case view, and it was likely to post a small loss or a small profit for the full year. The partnership is already targeting £100m of head office savings, with it now aiming to make these savings “as early as possible” this financial year and next.
