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John Lewis profits dented by growth commitment


John Lewis Partnership is maintaining a growth in sales but its profits have decreased in its first half due to significant investments, an interim report published today reveals.

While the company reported gross sales for the half year ending July 30th 2011 of £4.5 billion compared to £3.8 billion in same period last year, representing an increase of 6.4 per cent, there was a 18.2 per cent reported drop in profit before tax (PBT) from £110.5 million to £90.4 million.

Operating profit has also taken a knock, with the group reporting that this totalled £111.5 million compared to £145.2 million in 2010.

Commenting on the results, Charlie Mayfield, Chairman of the John Lewis Partnership, pointed to the ongoing economic struggles facing the country.

“Our sales momentum today has much to do with decisions taken to invest during similarly difficult market conditions in 2008 and 2009,” he explained.

“Our profit performance in the first half reflects not only the extremely challenging trading conditions, particularly in John Lewis, but also the significant investments we are making to accelerate growth and to seize the opportunities created by the structural shifts in how customers are shopping.”

John Lewis showcased this commitment to value by implementing the ‘Never Knowingly Undersold’ initiative, which has inevitably affected their profit margins as the retailer seeks to fall in line with competitors.

Waitrose has continued to outperform many of its grocery rivals and has been the fastest growing supermarket for over two years, although PBT has fallen to £110.2 million in the first half from £127.8 million in the same period last year.

Commitment to its multichannel strategy mean already accounts for 19 per cent of total John Lewis sales, with further growth expected, while the launch of Waitrose’s website in March saw a 26.8 per cent increase in sales for the supermarket.

Waitrose welcomed 2,400 Partners into new jobs in H1, with John Lewis aiming to recruit 1,000 new partners as more stores continue to open.

The department store has focused strongly on store restructuring, opening its first redesigned store in Westfield Stratford City yesterday, debuting the full-line flexible format that will stretch throughout the UK this year.

John Lewis invested £75.7 million in the first half, primarily on the new store at Stratford, while Waitrose saw a £149.5 million investment. Overall, cash generated from operations during the period was £238.2 million.

The introduction of convenience store format Little Waitrose, which has opened eight new stores with 12 more expected to open in the second-half, has emphasised the acceleration of the brand despite the difficult economic climate.

Looking forward, Mayfield feels that, while the market remains tough, ongoing developments to infrastructure and growth plans will ensure that future results are positive.

“After six weeks, Partnership gross sales are 7.4 per cent higher than last year. Waitrose gross sales have increased by 10.0 per cent (3.9 per cent like-for-like) and John Lewis gross sales are 3.2 per cent higher than last year (1.9 per cent like-for-like),” he explained.

“There are huge changes taking place in the way people shop as a result of technology reaching every part of our lives, and there is an ever greater demand for convenience and value.

“We are not simply waiting for the recovery, but instead we have increased the pace of investment and innovation across the Partnership putting us in the best possible position to seize the opportunity created by a rapidly changing retail environment.

“Our momentum is strong and I am confident we will build on that in the second half.”

John Lewis Partnership is owned by its workers, who receive a considerable benefits package. In March, the Partnership offered a competitive fixed return to investors with gross proceeds of £57.8 million.

Net finance costs fell by 39.2 per cent to £21.1 million. Finance costs on borrowings have increased by £5.2 million in the period, reflecting a net increase of £142 million in bonds, along with the launch of the Retail Bond of £57.8 million.

Published on Wednesday 14 September by Editorial Assistant

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