John Lewis Partnership has reported a 98.8 per cent fall in underlying pre-tax profits to £1.2 million for the six months to July 28.
Gross sales rose 1.6 per cent to £5486.6 million with revenue up 1.5 per cent to £4856.7 million.
Profit before tax fell 80.5 per cent to £6 million while total net debts were £700 million lower than the same period a year before.
“These are challenging times in retail. Our profits before exceptionals are in line with what we said they would be at our Strategy Update in June,” John Lewis Partnership chairman Sir Charlie Mayfield said on Thursday.
“We’re continuing to improve our offer for customers while ensuring we have the financial strength to continue developing our business going forward. This is reflected in both brands continuing to grow sales and customer numbers, and our total net debts reducing.”
Mayfield pointed out the profits before exceptional items are always “lower and more volatile” in the first half than the second, “especially so this half year, driven mainly by John Lewis & Partners where gross margin has been squeezed in what has been the most promotional market we’ve seen in almost a decade”.
Mayfield added: “The pressure on gross margin has predominantly been from our commitment to maintain price competitiveness. This reflects our decision not to pass on to our customers all cost price inflation from a weaker exchange rate and from our Never Knowingly Undersold promise, where we have seen an unprecedented level of price matching as other retailers have discounted heavily.”
As well as battling against competitive discounters while maintaining its Never Knowing Undersold policy, John Lewis was also seen to cut prices this summer after rival House of Fraser fell into administration.
At the start of the week retail analyst Nick Bubb warned John Lewis would be “lucky to scrape a profit” after it embarked on a summer of heavy discounting on the high street.
Fashion sales rose 1.2 per cent in the six months to the end of July, outperforming the wider market thanks to market share gains in womenswear, where sales were up 4.1 per cent.
Home and technology sales also sold ahead of the market, with electrical sales up 7.8 per cent, although home sales dropped 4.2 per cent due to a fall in demand for big ticket and bespoke items.
For Waitrose, gross sales rose 2.1 per cent and like for like sales excluding fuel were up 2.6 per cent.
Mayfield pointed out that profits had dipped year-on-year, but that “from Q1 to Q2 there has been marked improvement in like-for-like sales as well as good progress in rebuilding gross margin, and we are on track for profit growth for the full year”.
Looking ahead Mayfield warned, “With the level of uncertainty facing consumers and the economy, in part due to ongoing Brexit negotiations, forecasting is particularly difficult but we continue to expect full year profits to be substantially lower than last year for the Partnership as a whole.”