John Lewis profit growth set to ease high street gloom

John Lewis will next week unveil a double-digit rise in profits, triggering bonuses for 70,000 staff and helping to lift some of the gloom surrounding the retail sector.

• The John Lewis store in Edinburgh, where sales rose 7.3 per cent over the latest week Picture: Jon Savage

However, the employee-owned group is likely to join other retailers in warning that trading has become tougher in the face of rising costs and January's hike in VAT.

Nick Bubb, a retail analyst at brokerage Arden Partners, expects John Lewis Partnership, which also runs the upmarket grocer Waitrose, to report a 15 per cent rise in pre-tax profit for the year to January to 352 million.

Wednesday's results will also outline the size of the bonuses for its 70,000 or so employees, which the firm calls "partners". Some 3,000 are located north of the Border.

Those payouts rose 15 per cent last year to an average of about 2,100, following a year in which underlying profits climbed 10 per cent. However, a cautious outlook may deter the 147-year-old group from increasing the bonus beyond the rate of earnings growth.

John Lewis, which runs 28 department stores, four homewares outlets and 244 Waitrose supermarkets, is seen as a bellwether for the wider retail sector.

Recent sales figures have been subdued, but data published yesterday - covering the week to last Saturday - pointed to a modest strengthening. Sales across its department stores business rose 7.2 per cent year-on-year to 54m, with all three of its Scottish branches reporting gains. Edinburgh was the strongest, with sales up by 7.3 per cent, while both Aberdeen and Glasgow reported an increase of 1.8 per cent. The overall figure was boosted by the later timing of half-term school holidays in England this year.

Regional selling operations director David Barford said: "While week three (of the group's financial year] was half term north of the Border, it happened in the south last week and we finished the week 7.2 per cent up on last year. Looking at the two-week period, taking into consideration the change of the half-term dates, we achieved a 3.4 per cent increase."

He added: "Fashion led the way with its double-figure increase of 10 per cent, with the milder weather during the week helping customers to anticipate spring."

Recent company updates and industry surveys suggest that consumers are increasingly less prepared to spend, particularly on big-ticket items such as large-screen televisions and kitchens, as muted earnings growth and higher inflation eat into disposable income.

Howard Archer, chief UK economist at IHS Global Insight, said that after stripping away the impact of the school holiday timings, it appeared John Lewis's sales had "lost significant overall momentum in recent weeks".

He pointed out that sales were up just 2.4 per cent year-on-year in the four weeks of trading to 26 February. "This marks a substantial recent softening in trade, given that John Lewis's overall sales were up by 9.9 per cent year-on-year in their first-half trading," Archer said.

Freddie George, retail research analyst at Seymour Pierce, said: "We remain cautious on the general retail sector over the first half and with interest rate increases on the horizon, it is difficult to see the sector performing over the short term unless corporate activity picks up."

You can never be too connected to your custmers ERIKKA ASKELAND, PAGE 38