Profits fall by half but John Lewis vows to invest £189m

Published on Thursday 17 September 2009 21:44

JOHN Lewis yesterday vowed to continue its aggressive investment programme, spending the best part of £200 million in the second half, despite a sharp fall in profits.

The employee-owned group – seen as a barometer of British retailing – said that a resurgent performance at its Waitrose supermarket chain had failed to halt the profit slide.

A 49 per cent plunge in operating profits across the 27-strong department store business dragged overall results lower, sending group underlying pre-tax profits down by almost a fifth to 86.3m from 107.3m a year earlier.

Total sales in the half year to 1 August grew by 3.5 per cent to just under 3.4 billion.

No store-by-store breakdown was provided but recent weekly sales figures have shown the group's Edinburgh department store to be among the poorest performers.

Across the first five weeks of the second half, sales at the flagship Scottish outlet were down 8.1 per cent on a year earlier.

The partnership's two other stores north of the Border, in Glasgow and Aberdeen, have seen sales dip just 1.7 per cent and 2.4 per cent, respectively.

Retail experts have suggested that the Edinburgh branch has been hit by the ongoing disruption caused by the city's trams project and a slump in the financial services sector.

John Lewis chairman Charlie Mayfield warned that trading conditions would remain "difficult" for the remainder of 2009, and into next year.

Despite the dreary backdrop, he said the 145-year-old group would continue ploughing cash into new shops, refurbishing existing stores and developing its online offering. Having spent 278m in the first half, John Lewis plans to invest 189m during the second.

Waitrose was the star performer during the first half, with takings boosted by the launch of a low-cost "essentials" range and free online delivery offer.

Operating profit jumped 18.7 per cent to 19.1m during the period and total sales gained 7.4 per cent to 2.18bn. Like-for-like sales were 1.8 per cent higher.

In contrast, the department store arm booked operating profits of 20.9m, down from 41m a year earlier. Like-for-like sales fell 4.7 per cent.

The chain opened 17 shops in the half year, including the first two Waitrose outlets in motorway service stations.

It recently announced a long-expected move into Glasgow as part of plans for a wider expansion in Scotland, adding to its two established stores in Edinburgh. John Lewis has a permanent staff of about 69,000. Employees – the so-called "partners" – are entitled to a share of profits, with details announced after publication of the full-year results.

Mayfield said: "We're pleased with our first half performance, the result of our early response to the downturn, the slight easing of trading conditions and, crucially, the action we've taken to build momentum in every part of the business.

"The economic environment has turned out to be better than we originally expected, and although conditions remain challenging, we have seen an encouraging response to the steps we have taken to reposition the partnership to the new retail environment."