John Lewis Partnership Reports First-Half Losses

The John Lewis Partnership has published unaudited results for the half-year ended 27 July 2019, advising it is to focus on long-term investment and success despite short-term profit pressures.

Financial Overview

Sir Charlie Mayfield, Partner and Chairman of the John Lewis Partnership, commented: 

The re-drawing of the UK retail landscape continues apace. While trading conditions have continued to be difficult, we have accelerated our differentiation strategy and significantly strengthened our balance sheet. The Partnership made a loss before Partnership Bonus, tax, exceptionals and IFRS 16 of £(25.9)m, down £26.7m. Within that, operating profit before exceptionals and IFRS 16 improved in Waitrose & Partners by £14.1m to £110.1m, largely due to property profits this year, but we also saw an improvement in gross margins and a strong operational performance. In John Lewis & Partners, operating losses before exceptionals and IFRS 16 increased by £42.5m to £(61.8)m, reflecting lower sales in categories with more considered purchasing, cost inflation (including non-management Partner pay) well ahead of the level of sales growth and higher IT costs. Our Profit before tax, which includes exceptional income and the charge from adopting IFRS 16 was £191.5m, up £185.5m.

We have continued to strengthen our balance sheet position. Total net debts have reduced by £469.2m compared to July 2018. This is due to strong cash generation and tight cash management as well as the decision to close our final salary defined benefit pension scheme. The latter is also the main contributor to our exceptional income. Our accounting pension deficit (post tax) has reduced to £62.8m (July 2018: £171.3m, January 2019: £404.7m) and our triennial actuarial valuation as at 31 March 2019 is currently underway. We have also maintained a strong liquidity position at £1,153m at July 2019, our highest liquidity position at this time of year for more than 10 years and up £116m compared to last year. This is lower than January 2019 due to the cyclicality of cash in our business through the year and because we repaid a £275m bond in April 2019.

As we continue with our strategy to compete through differentiation, not scale, we have maintained investment in Partners and innovation, despite profit pressures, and have seen encouraging results in several areas. In John Lewis & Partners we have seen strong sales growth in Fashion and Beauty and have grown market share significantly as customers responded to our investment in own-brand redesign, new brands, advisory services and personalised shopping experiences. In Waitrose & Partners, despite a weak grocery market, we had a good trading performance with only a marginal decline in like-for-like sales, and continued improvement in gross margins, benefiting from 47 completed category reviews. We also saw strong online grocery sales growth of 10.7%, well ahead of the market. In addition, our focus on innovation in areas that matter to our customers and us, was demonstrated by our successful trial of Waitrose Unpacked, which provides customers with new ways of shopping whilst supporting waste reduction.

Partners play an important role in our differentiation strategy and empowering them so that they are able to create more value for our business is a priority. We continue to invest in non-management Partner pay, well ahead of the level of sales growth. Our average hourly rate of pay for non-management Partners at £9.59, is up 4.7% from January 2019 and is 16.8% above the National Living Wage. In addition, the first half year also saw the greatest single investment we have made in leadership development reaching more than 7,500 people managers. In Waitrose & Partners, we launched the School of Food with 2,000 Partners having attended and a further 2,000 will do so in the second half. In a similar vein we are developing our first John Lewis Service Academy."

Outlook
We have historically made the majority of our profits in the second half of the year. Although we expect retail conditions to remain challenging, we are pressing on with key areas of innovation such as Waitrose Unpacked and the renewal of key ranges in areas like Menswear and Home. Over the next 12 months, we will also accelerate our transformation of the Partnership to deliver innovation faster and increase emphasis on the competitive difference of Partners.

However, 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. 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. However, Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period.

After a thorough process, I was delighted to announce in June that Sharon White will be the sixth Chairman of the John Lewis Partnership. She is an inspirational leader with the skills to take the Partnership forward and will take up her position in early 2020.”

Source : Insight DIY Team and John Lewis Partnership

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