Reaction: John Lewis warns of Brexit blow after sliding into the red

The group has three Scottish department stores, in Aberdeen, Glasgow and Edinburgh, pictured above. Picture: Neil HannaThe group has three Scottish department stores, in Aberdeen, Glasgow and Edinburgh, pictured above. Picture: Neil Hanna
The group has three Scottish department stores, in Aberdeen, Glasgow and Edinburgh, pictured above. Picture: Neil Hanna
John Lewis has warned that a hit from a no-deal Brexit would be "significant" and impossible to offset as it revealed half-year losses of almost £26 million.

The partnership behind the John Lewis department stores, three of which are in Scotland, and the Waitrose supermarket chain 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, the 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.

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"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, echoing comments from other major retailers in recent months, he warned that Brexit "continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period".

Results from the partnership showed that it fell to an underlying pre-tax and bonus loss of £25.9m for the six months to 27 July - against a modest profit of £800,000 a year earlier - as it said trading conditions had remained "difficult".

The partnership said it was driven into the red by widened operating losses at its John Lewis department store chain, which increased to £61.8m from £19.3m a year ago as it suffered falling sales, surging costs of an IT overhaul and increasing cost inflation. Like-for-like sales dipped 2.3 per cent across the department store business due largely to weaker demand for big-ticket home and electrical items.

Waitrose performed better, with underlying earnings jumping 14.7 per cent to £110.1m, though comparable sales dipped 0.4 per cent.

The partnership's results showed that, on a statutory basis, pre-tax profits rose to £191.5m from £6m 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.

Chris Daly, chief executive of the Chartered Institute of Marketing, said: "On face value John Lewis' results are disappointing, but compared to other UK department stores it is still streets ahead.

"John Lewis' market-leading position is a result of a powerful brand and marketing strategy. Its respected heritage sets it apart from competitors and builds unrivalled customer loyalty. Just over a year since its joint rebrand with Waitrose, it seems that's not changing soon."

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He added: "Despite its relative strength, John Lewis is not immune to tough retail conditions. It risks heading towards a price cut trap, partly because its 'Never Knowingly Undersold' brand positioning forces it to pursue rivals' discounts. Add to this customers that are tougher than ever to lure into stores, and today's results present a stark warning.

"The brand is moving in the right direction by embracing the shift online but it would be wrong to underestimate the potential of its stores. The challenge has been set to John Lewis' marketers: re-imagine the in-store experience to create a reason to make the trip."

George Salmon, equity analyst at financial services group 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.

"Weakness in big ticket purchases is particularly interesting because it implies consumers are factoring in Brexit uncertainty before splashing savings on large screen TVs or setting up repayment plans for new furniture. 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.

"There are a couple of positives for the group, however. Waitrose like-for-like sales have dipped, but not by as much as Morrisons. As well as that, the group increased market share in fashion & beauty, while net debt and the pension deficit both decreased. Still, these are tough times for the partnership.”