John Lewis and Next see profits rise but warn of consumer slowdown

By DOMINIC JEFF
Published on 13/09/2012 21:47

RETAILERS John Lewis and Next yesterday dampened hopes that Britain is emerging from recession, warning of a weakening consumer outlook even as they posted higher profits for the first half of the year.

John Lewis chairman Charlie Mayfield warned that consumer demand remains “fragile”, although sales in the second half had so far continued to grow at a double digit rate. Profits for the first six months rose by 60 per cent.

He said: “Our rate of growth will remain positive but will be slower in the second half and, with further investment planned in that period to strengthen our business, the rapid rate of profit increase is not expected to be carried through to the full year.”

Next said that August and September had been “unusually quiet”, taking the shine off a better-than-expected 10 per cent rise in pre-tax profits of £251 million in the six months to July as new stores and strong online sales offset lower sales from shops open more than a year.

The warnings will dent hopes that Britain will return to sustainable growth in the second half of the year. Improved data from service and manufacturing sector purchasing managers and a large fall in the UK’s trade deficit recently led to hopes that the country is already out of recession.

Argos parent Home Retail Group added to the mixed messages yesterday as the company’s two major brands reported diverging fortunes. The group said an improvement in consumer electronics resulted in like-for-like sales growth of 1.4 per cent in the 13 weeks to 1 September, following a 0.2 per cent drop in the first quarter.

However, same-store sales at Home Retail’s Homebase chain continued to fall in the second quarter, by 3.7 per cent, as weather dampened demand for seasonal products, although the figure was better than the 8.3 per cent decline in the previous three-month period.

John Lewis, which was until recently regarded as a bellwether for the British high street, now appears to be outperforming other retailers by a considerable margin.

The employee-owned John Lewis Partnership, which includes Waitrose supermarkets as well as the eponymous department store chain, said revenues grew 8.6 per cent to £3.9 billion in the six months to 28 July, and pre-tax profits hit £144.5 million.

Mike van Dulken, head of research at Accendo Markets, said the employee ownership model was a huge help.

“Quality of service tends to be much better as staff have vested interest, their input is valued, management feels closer, and so they are happier,” he said.

“This creates a ‘nice’ as opposed to the more common ‘vicious’ circle of no interest, no input, management far away and service less good.”

Freddie George, retail analyst at Seymour Pierce, said John Lewis was also benefiting from the way its business was weighted towards the south of England, where the economy has been more resilient.

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