The John Lewis Partnership has added to the retail sector’s woes by posting its first-ever half-year loss and warning that a no-deal Brexit will have a “significant” impact on the business.
The group, which owns the Waitrose and John Lewis chains, recorded a £25.9m loss in the six months to 27 July against an underlying pre-tax profit of £0.8m in the same period last year.
The decline was principally due to an increase in operating losses in its John Lewis division, down £42.5m to £61.8m. This reflected a 2.3% fall in like-for-like sales amid “subdued” consumer confidence, with home and electrical goods a particular weak spot. It also blamed cost inflation and IT investment.
Things were slightly better at Waitrose where operating profits rose 14.7% to £110.1m, boosted by property profits, as well as improvements in gross margins and operational performance. The supermarket chain’s like-for-like sales slipped 0.4% in a “weak grocery market”, although the group said the business was benefitting from 47 completed category reviews. It also saw strong online grocery sales growth of 10.7%.
The partnership, which normally makes most of its profits in the second half of the year, said it had been making preparations for a no-deal Brexit.
However, Sir Charlie Mayfield, the partnership’s Chairman who is due to step down next year, said: “Should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact.”
He revealed that the group had tried to bolster its financial resilience by reducing debt, hoarding cash and increasing foreign currency hedging, as well as stockpiling goods where possible.
“However, Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period,” he stated, adding that the knock-on impact on profits could be “significant”.
Commenting on the results, Hargreaves Lansdown analyst George Salmon said: “After a disappointing end to last year, and the well-documented problems at fellow department stores Debenhams and House of Fraser, it’s no surprise to see John Lewis’ like-for-like sales and profits falling.
“Weakness in big ticket purchases is particularly interesting because it implies consumers are factoring in Brexit uncertainty before splashing savings on large screen TVs or setting up repayment plans for new furniture.”
NAM Implications:
- This is not about Brexit or any on the economic factor…
- Realistically, it becomes increasingly difficult for JLP to remain immune to the negative impact of a department store model that is past sell-by in the UK…
- …following the decline of its less efficient rivals, HOF and Debenhams.
- Also, the inevitable knock-on impact in terms of inevitable profit share reductions on partner morale.
- NAMs might benefit from conducting a what-ifs on JLP (and Waitrose) not being able to pull out of this spiral…
