John Lewis half-year profits tumble 53% as costs grow

The John Lewis Partnership has reported a 53% fall in half-year profits, despite sales growth at both its Waitrose supermarkets and department stores.

The employee-owned group blamed higher costs and "dampened customer demand".

Chairman Sir Charlie Mayfield told Sky News that the weaker pound and uncertainty of Brexit have also impacted performance.

Profit before tax came in at £26.6m for the six months to 29 July - held back by a string of costs including restructuring and pension charges, while it also raised pay for non-management partners.

However, gross sales were up 2.3% for both brands - with revenue hitting almost £4.8bn, up 2.2% on the same period last year.

Operating profit before exceptional items and property profits was up 10% in John Lewis, but trading profits for Waitrose were 18% lower.

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It said the figure reflected the chain's decision to pass on "few" increased costs to shoppers.

The cost of many imported goods for retailers has shot up in the wake of the Brexit vote because of the weakness of the pound - leaving stores under pressure to cut margins or raise in-store prices.

Sir Charlie told Sky (Frankfurt: 893517 - news) 's Ian King Live programme: "The main reason sterling is lower... is because of the decision to leave the European Union and that does have an impact in a number of different ways on different businesses.

"There's also the uncertainty on what Brexit will mean, which does weigh on businesses and on consumers.

"Those factors both have an impact on the trading environment, but that is for everybody - we're not saying that this is peculiar to John Lewis Partnership or Waitrose - everybody is facing that issue.

"I do think, though, that we need to see justice done to the complexities we're facing.

"This (Brexit) is unquestionably a difficult negotiation that's going on and I think that what's required is a serious debate in Parliament about what kind of Breixt we should be having."

Group rivals Morrisons and Next (Frankfurt: 779551 - news) , which also reported on their half-year performances on Thursday, raised their profit guidance for the full year.

Morrisons - one of the so-called big four supermarket chains - said it had achieved seven consecutive quarters of sales growth as its turnaround plan continued to deliver improvements to shoppers.

It said like-for-like sales grew 3% while pre-tax profits were up 40% to £200m.

Chief (Taiwan OTC: 3345.TWO - news) executive David Potts told Sky's Ian King Live programme that he was confident in the face of Brexit.

He said: "We're not blinded to macro events but in the end we have to do a better job of being more competitive and serving customers better.

"If we do that, then I genuinely think the take up in customer numbers for seven consecutive quarters can carry on."

Next signalled it may have been overly cautious in its previous expectations though total sales were down 2.2% in its first half and profits almost 10% lower. Shares (Berlin: DI6.BE - news) rose 10% in early deals.

Nevertheless, all three groups pointed to a tough trading environment as customers' budgets are squeezed by the effects of inflation outpacing wage growth .

Sir Charlie added: "Our full-year profits will depend, as they always do, on the final quarter, which typically accounts for well over half of our profits before exceptional items.

"We expect margin pressure to continue into the second half year and we will incur higher pension accounting charges, as a result of low market interest rates at the start of the year. These will impact our overall profits."