John Lewis Partnership has revealed diving profits in its full-year results as “intensifying margin pressure” at Waitrose drags down figures.
In the year to January 27, gross sales across the partnership rose two per cent, with like-for-likes growing at 0.4 per cent and 0.9 per cent at Waitrose and John Lewis respectively.
Despite sales edging up over the year, profits took a hammering. Group profits before partnership bonus, tax and exceptional items dropped 21.9 per cent to £289.2 million.
The group’s poor performance has also driven a drop in partnership bonus for the fifth consecutive year to the lowest level for 63 years – standing at £74 million, or the equivalent of five per cent of salary.
This was reportedly due to two factors. The partnership suffered major exceptional charges of £111.3 throughout the year, including a restructuring and redundancy bill of £72.8 million.
Profit before partnership bonus and tax also dived 67.2 per cent.
Furthermore, the weaker exchange rate hit its grocery arm Waitrose hard. Operating profits before partnership bonus, tax and exceptional items at Waitrose was down 32.1 per cent, compared to John Lewis’ 4.5 per cent rise.
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According to the company, after resetting its gross margins in response to the weaker sterling, the “resulting lower rate of gross margin was equivalent to more than 80 per cent of the shortfall in operating profit before exceptional items”.
“We said in January 2017 that we were preparing for tougher trading conditions with weakness in sterling feeding through into cost prices, putting pressure on margin, and much higher exceptional costs as a result of an acceleration of planned changes,” partnership chairman Sir Charlie Mayfield said.
“This was why we chose to reduce the proportion of profits paid as partnership bonus last year so as to absorb these impacts while continuing to invest in the future and in strengthening our balance sheet.
“We did both and I am pleased to say that despite lower profits, strong cash flow has enabled us to reduce our total net debts.”
The retailer’s outlook for the coming year remains cautious, anticipating “further pressure on profits”.
It added that the significant investment made this year to implement changes will strengthen its competitive position.
The full-year report from the John Lewis Partnership comes amid a turbulent time for UK department store and grocery retailers.
John Lewis’ main rivals Debenhams, House of Fraser and Marks & Spencer are all in the midst of a turnaround strategies and restructuring to return it to growth, while Waitrose’s Big 4 rivals have all announced cut backs to staff numbers as they take a hit from rising costs and inflation.
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