John Lewis profits slide with outlook volatile

John Lewis Partnership PLC has announced their unaudited results for the 52 week period ended 27th January 2018.

Financial Summary

• Gross sales up 2.0% and increased customer numbers across both John Lewis and Waitress brands.
• Profit before Partnership Bonus, tax and exceptional items down 21.9% to £289.2m, largely due to lower gross margins in Waitrose driven by the weaker exchange rate and commitment to competitive pricing.
• An adverse movement in exceptional items of £282.5m led to profit before Partnership Bonus and tax reducing by 67.2%. This year there was an exceptional charge of £111.3m, mainly for restructuring and redundancy costs of £72.8m and Waitrose branch impairments of £38.9m. By comparison, in 2016/17 there was exceptional income of £171.2m mainly due to changes made to annual discretionary increases for pension benefits built up before 1997. 
• Net debt of £216.5m, £34.1m (13.6%) lower than January 2017 and positive progress made in reducing pension deficit and increasing total liquidity. However, our Debt ratio increased from 4.0 times in 2016/17 to 4.3 times this year principally due to reduction in profits.
• Accounting pension deficit, net of deferred tax, of £623.1m, £234.4m (27.3%) lower than January 2017, including benefit from change in discount rate methodology. The estimated actuarial pension deficit is £211m at January 2018, £187m (47.0%) lower than last year
• Partnership Bonus of £74.0m; 5% of salary

Sir Charlie Mayfield, Chairman of John Lewis Partnership, commented:

'As we anticipated, 2017 was a challenging year. Consumer demand was subdued and we made significant changes to operations across the Partnership which affected many Partners. However, their hard work throughout the year was key to delivering gross sales of £11.60bn, up 2.0%, with like-for-like increases in both Waitrose and John Lewis. However, profit before Partnership Bonus, tax and exceptional items was down 21.9% mainly as a result of intensifying margin pressure in Waitrose.

We said in January 2017 that we were preparing for tougher trading conditions with weakness in Sterling feeding through into cost prices, putting pressure on margin, and much higher exceptional costs as a result of an acceleration of planned changes. This was why we chose to reduce the proportion of profits paid as Partnership Bonus last year so as to absorb these impacts while continuing to invest in the future and in strengthening our balance sheet. We did both and I am pleased to say that despite lower profits, strong cash flow has enabled us to reduce our total net debts.

Partnership Bonus has been awarded at 5%. We also remain committed to increasing pay rates for non-management Partners, and in October we increased pay outside the annual pay review cycle for 17,000 Partners. As at January 2018, the average hourly rate of pay for a non-management Partner was £8.91.'

Outlook 2018/19

For the first five weeks of the year, Partnership gross sales were up 0.6% on last year. Waitrose gross sales were up 2.7% (up 2.4% like-for-like, excluding fuel) and John Lewis gross sales were down 2.8% (down 3.4% like-for-like). Sales were significantly impacted, particularly in John Lewis, by the heavy snow last week.

We expect trading to be volatile in 2018/19, with continuing economic uncertainty and no let up in competitive intensity. We therefore anticipate further pressure on profits. However, the Partnership will see benefits this year from the many changes we implemented in 2017/18, and the faster delivery of key innovations. Together these will strengthen our competitive position in 2018.

Source: Insight DIY Team

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