Half-year results from the John Lewis Partnership (JLP) confirm that Waitrose is making good progress in winning back shoppers, while its sister chain John Lewis outperformed a market impacted by ongoing economic uncertainty. However, losses across the group widened as the new packaging tax and higher national insurance contributions (NIC) took their toll.
Across the six months to 26th July, Waitrose saw its sales increase 6% to £4.1bn and a 3% rise in volumes, with almost all growth like-for-like. Reflecting the improvements the brand has made to its offering, including lowering prices and refurbishing stores, it recorded another period of customer growth, with 9% more people now shopping with Waitrose than two years ago.
However, the chain’s adjusted operating profit was down £3m to £110m in the first half, with sales growth and margin progress, as well as productivity improvements, offset by taxation costs of £22m from the new EPR packaging levy and the hike in NICs that resulted from last autumn’s budget.
During the period, Waitrose completed seven refurbishments, opened one new convenience store, two new Welcome Break shops, and announced both its first large store opening in almost a decade and a new distribution centre.
Meanwhile, the group’s John Lewis department store division saw its sales increase 2% to £2.1bn, despite tough trading conditions in the sector. The company noted that it managed to attract more customers through offering “quality, style and value, which has resonated strongly”.
The group highlighted that it had continued to invest for the long term, with a major refurbishment of its John Lewis store in Liverpool, more omnichannel shopping options, and the return of its Never Knowingly Undersold promise. However, JLP admitted that these investments and a renewed focus on value, compounded by a sales mix shift towards technology and beauty, had impacted gross margins. The chain’s adjusted operating loss was £53m in the first half, down £4m, including incremental taxation costs of £7m from the new EPR and higher NICs.
Overall, the employee-owned company posted a loss before tax and exceptional items of £34m, compared with a loss of £5m during the same period last year. Excluding exceptional items, losses widened from £30m to £88m, in part owing to restructuring costs as JLP tried to simplify the business.
The group traditionally generates most of its sales and profit in its second half, when it benefits from the so-called ‘golden quarter’. New Chairman Jason Tarry, who is driving forward the revival after a challenging period, said: “Our clear focus on accelerating investment in our customers and our brands is working: more customers are shopping with us, driving sales, and helping Waitrose and John Lewis outperform their markets”.
He noted that the retailer was “well positioned to deliver full-year profit growth” but warned “the macroeconomic environment [would] remain challenging”.
Some market analysts cautioned that the sales figures are likely to have been flattered by the disruption to trading at key rival M&S, which suffered a cyber attack in April.
However, Robyn Duffy, consumer markets senior analyst at RSM UK, praised the group’s progress: “Waitrose’s performance has been a key driver, benefiting from a renewed focus on its food proposition, including a greater emphasis on lower prices and a more effective adoption of technology to improve the customer experience.
“Meanwhile, the John Lewis retail arm is successfully drawing in customers through a combination of revitalised physical stores, a focus on meaningful brand partnerships, and the reintroduction of its Never Knowingly Undersold price matching strategy.”
NAM Implications:
- Unprecedented times mean a focus on profitable sales.
- And JLP cannot afford to be an exception…
- Hence, their concerns about the inevitable impact on the bottom line of the NIC Rise and Packaging Tax…
- Given genuine volume growth via increased numbers of shoppers…
- …Waitrose are pressing on in investment mode.
- However, it is vital that JLP move to profit mode.
- If only to enable the restoration of the partner profit share….
