Industry | 2009.09.17
John Lewis store profits crash 50%
• Total pre-tax profits across retail group fall 20% to £86.3m
• Waitrose saves day with 19% profit rise
Profits at the John Lewis department store chain crashed more than 50% in the first half of this year as the recession battered sales of big-ticket home ranges.
The 26 department stores made operating profits of just £21m in the six months to August – down from £43m over the same period in 2008 and £54m in 2007.
Profits at the wider John Lewis group, however, regarded as a barometer of middle class consumer confidence and which includes the Waitrose supermarket chain, were down only 20% as Waitrose posted higher sales and profits, defying gloomy predictions that it would lose to cheaper rivals as the recession took hold.
The update from John Lewis came as official figures showed retail sales volumes were flat in August and almost unchanged since June – suggesting high street stores have had a difficult summer, and that consumer confidence is not returning at any pace.
Food stores proved resilient, with sales growth of 0.7%, but clothing and footwear retailers had a tough August, with sales down 1.3% from July.
French Connection is among those finding trade tough. The retailer, famous for its fcuk branding, more than doubled its losses to £13m in the first half, and said it was being "severely affected by difficult retail environments in all of our markets around the world".
The 365-outlet fashion chain has closed stores in Northern Europe, axed head office staff and intends to "implement further measures". It said wholesale orders for the months ahead were also down and its shares lost 15% to close at 49p.
Overall profits at the employee-owned John Lewis business came in at £86.3m – down from £107m last year and 40% lower than in 2007. The business makes the bulk of its profit in the second half, but the half-way result suggests staff cannot look forward to bumper annual bonuses this year. Last year they received a 13% payout, or seven weeks\' pay.
Waitrose operating profits soared 19% to £121m. Sales climbed 7%, boosted by new stores acquired from Somerfield. Like-for-like food sales were up 2%, with growth driven in the second three months by the grocer\'s new basic range of groceries, called Essentials. The new own-label accounted for 15% of sales in four months.
At the other end of the price spectrum Waitrose has launched an upmarket line, called Seriously, and last week did a deal with Prince Charles\'s Duchy Originals brand to become the sole manufacturer and distributor of the Royal label.
The WaitroseDeliver online service is also growing fast. Orders have increased 84% and sales by 77% since delivery charges were abolished in April.
In the department stores, however, like-for-like sales were down 4.7%. Excluding new stores and the fast-growing online business, sales were far worse – down nearly 7%.
JLP chairman Charlie Mayfield insisted he wasn\'t disappointed and that trade had "turned out better than we originally expected".
Fashion sales were higher, but electricals lost ground and homewares were down 8.1%. Homeware sales – which are directly linked to the number of people moving home – account for more than a third of John Lewis sales and an even higher proportion of profits.
Mayfield said he expected the difficult retail conditions to drag on through next year: "We have got a general election ahead, which always generates uncertainty. There will be public expenditure cuts, bringing renewed job insecurity and there will be tax increases. It is going to be a long and slow recovery."
Richard McGuire at RBC Markets said today\'s official retail sales data did "nothing to alter the bigger picture of a consumer that, over the long run, will remain hampered by a slackening jobs market, potentially negative real wage growth and a dearth of credit – all of which will conspire to see consumption eschewed in favour of a marked rise in household savings in the coming months".
Stephen Robertson, director-general of the British Retail Consortium, said the retail sales numbers would improve in the coming months, but warned that did not mean the high street would bounce back: "The comparison will be with very weak figures last year, when total sales growth fell below zero from October onwards and Christmas was the worst since 1995."
For more information, please visit
http://www.guardian.co.uk/business/2009/sep/17/john-lewis-profits-drop
