John Lewis, Next, Argos owner’s recovery doubts

High street retailers John Lewis, Next, and Argos owners Home Retail Group have cast doubt on an imminent consumer recovery. Picture: Comp

Department store operator John Lewis, fashion chain Next and Argos-owner Home Retail Group said that, while the economic backdrop was stabilising, consumer confidence had yet to return to pre-recession levels.

Recent official data and industry surveys have pointed to an improving outlook for spending, with cash-squeezed consumers feeling more confident about committing to big-ticket items such as cars, furniture and electrical goods. However, many retailers still remain cautious on the market for the year ahead.

Employee-owned John Lewis, which runs 39 department stores and the upmarket Waitrose grocery chain, posted a steady rise in first-half sales and underlying profit and said it expected to trade positively in the second half.

But managing director Andy Street noted that shoppers were still being careful on how they spend.

“They’re willing to spend on big purchases,” he said, “but what we’re definitely not seeing is a return to what I would describe as conspicuous consumption.”

The group racked up £4.7 billion in sales in the six months to 27 July, an increase of 7 per cent despite comparisons with strong trading last summer.

Underlying profits were 4 per cent higher at £115.8 million, although a payment of £40m to staff following the miscalculation of holiday pay over the past seven years meant bottom-line profits slumped 38.5 per cent to £68.5m.

High street stalwart Next posted a 8.2 per cent rise in its first-half profits to £271.8m, helped by a strong performance from its Directory internet and catalogue business as well as store openings.

Revenues lifted 2.2 per cent to £1.68bn, with retail sales down 0.9 per cent but Directory takings up 8.3 per cent. The interim dividend is set to rise by 16.1 per cent to 36p.

Chief executive Simon Wolfson said: “While there is some relief in the economy, I think it would be a mistake to characterise that as a full blown recovery because a recovery will require growth in real earnings not just more borrowing.”

He believes that a return to earnings growth ahead of inflation will take at least a year and warned that a loosening of the mortgage market alongside UK government housing market stimulus measures looked likely to result in an “unhelpful house price bubble”.

Home Retail, meanwhile, posted weather-assisted second-quarter underlying sales rises of 2.7 per cent and 11 per cent at its Argos and Homebase businesses respectively, but remained cautious.

Chief executive Terry Duddy said: “Whilst we continue to expect consumer spending to remain subdued, we approach the important Christmas trading period in good operational shape.”

The group is reducing its dependence on its Argos catalogues after a period in which the business has been squeezed by the economic downturn and competition from the likes of Amazon.