The John Lewis Partnership has warned the hit from a no-deal Brexit would be “significant” and impossible to offset as it tumbled to its first ever half-year loss.
The owner of the department store chain and supermarket Waitrose reported underlying losses before tax and staff bonuses of £25.9 million for the six months to July 27, against profits of £800,000 a year earlier.
It said that, while it was taking actions to prepare for a possible no deal, it could not entirely protect itself against an expected major impact.
Sir Charlie Mayfield, outgoing chairman of the John Lewis Partnership, said: “Should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact.
“In readiness, we have ensured our financial resilience and taken steps to increase our foreign currency hedging, to build stock where that is sensible, and to improve customs readiness.”
But he warned that Brexit “continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period”.
His comments came after the Government was forced to release its “worst case scenario” plan for a no-deal Brexit, codenamed Operation Yellowhammer.
It showed that no deal could trigger medical shortages, food price rises and major cross-Channel trade delays.
Sir Charlie said the group’s no-deal Brexit fears centred on the impact on fresh food supply and consumer confidence.
He said: “Ultimately, that could have a knock-on impact on profits. That could be significant.”
The group is building stocks where it can in some non-perishable foods, such as wine, olive oil, canned food, as well as frozen items.
Sir Charlie said trading conditions had “worsened” in 2019 and would continue to be challenging over its peak sales period as Brexit takes its toll.
The group was driven to a half-year loss for the first time on record by widened operating losses at its John Lewis department store chain, which increased to £61.8 million from £19.3 million a year ago as it suffered falling sales, surging costs of an IT overhaul and increasing cost inflation.
Like-for-like sales fell 2.3% across the department stores due largely to weaker demand for big-ticket home and electrical items.
Waitrose performed better, with underlying earnings increasing 14.7% to £110.1 million, though comparable sales edged 0.4% lower.
The partnership’s results showed that, on a statutory basis, pre-tax profits jumped to £191.5 million from £6 million a year earlier, but this included one-off items – such as a boost from closing its defined benefit pension scheme – and were flattered by accounting changes.
Waitrose also revealed in its half-year results that it had ended talks with e-commerce platform Today Development Partners (TDP), which had been lined up to replace former long-term partner Ocado.
It will instead use its “existing expertise across the partnership” to develop its online arm and automated warehouse operations.
Boss Rob Collins stressed the group was still on track to triple its online grocery arm to a £1 billion business over the next three years.
George Salmon, equity analyst at Hargreaves Lansdown, said: “After a disappointing end to last year, and the well-documented problems at fellow department stores Debenhams and House of Fraser, it’s no surprise to see John Lewis’ like-for-like sales and profits falling.”
He added: “The group has warned of the damage a no-deal exit could do, and since that could come in the run-up to Christmas, the timing couldn’t be worse.”