The John Lewis Partnership has slumped to a first-half loss, with the operator of the John Lewis and Waitrose chains blaming surging cost inflation not being fully passed on to consumers, the impact of the cost-of-living crisis, unwinding Covid shopping patterns, and investment initiatives to improve its offer.
Excluding exceptional items, the loss was £92m compared to a profit of £69m in the same period last year. The group noted that it was not unusual for it to make a loss in the first half of the year, having done so in three of the last four half years, with trading and profits heavily skewed to the Christmas trading period.
The figures for the six months to 30 July confirm that Waitrose is struggling as shoppers seek out value-orientated supermarkets amid surging food inflation. The chain’s like-for-like sales slid 5% to £3.6bn, with tough comparatives to raised demand during the pandemic also to blame. The group highlighted that its sales were still up 7% on three years ago.
Waitrose claimed that customer numbers had held up with transactions growing 14% year-on-year. However, basket sizes were smaller by nearly a fifth as cash-strapped shoppers made cutbacks. The group noted that nearly seven in ten baskets included a product from its Essential range.
Trading operating profit at Waitrose fell by £93m to £432m due to a combination of volume decline and inflationary pressures being partially offset by a more favourable profit mix and cost savings.
In the John Lewis division, like-for-like sales grew 3% to £2.1bn as shoppers returned to its department stores, having moved online over the last couple of years. The share of sales in its shops averaged 41% during the latest period, compared to 26% in the last half year during the pandemic, and 60% before Covid. Its City Centre stores benefitted from workers returning to offices.
John Lewis highlighted how inflation and rising energy costs were affecting spending patterns. Its ANYDAY value range saw sales rise 28%, whilst energy-saving devices and appliances were also in high demand.
Despite not passing on its own rising costs to customers, trading operating profit at John Lewis was maintained at £295m.
Sharon White, chair of John Lewis Partnership, stated that the outlook was “uniquely uncertain”, and it would need a “substantial strengthening” of performance in the second half to generate sufficient profit to ensure its staff will receive their renowned annual bonus.
She said: “No one could have predicted the scale of the cost of living crisis that has materialised, with energy prices and inflation rising ahead of anyone’s expectations. As a business, we have faced unprecedented cost inflation across grocery and general merchandise.”
White noted that customers were moving their discretionary spending from high-margin, big-ticket household items to restaurants and holidays. She said a successful Christmas will be “key for the business”, although much will depend on the wider economic outlook and consumer sentiment.
The group, which is investing £500m in keeping its prices competitive this year, also announced measures to help staff cope with the cost of living crisis. Its so-called ‘Partners’ will receive a one-off cost of living support payment of £500 for full-time workers, pro-rata for part-time. Entry-level partners will also receive a 4% pay rise, which will cost the business £10m in the second half of this financial year.
NAM Implications:
- Wrong time, wrong place for JLP…
- i.e. won’t be enough traditional customers willing to bail them out via the inevitable price premia.
- Meanwhile, anticipate a quick fix of more store closures…
