John Lewis has warned that rising prices and weaker consumer demand prompted by Brexit will continue to hit the business in the remainder of the year, as it revealed profits had more than halved in the first six months.
The group, which owns Waitrose supermarkets as well as the John Lewis department store chain, said it was operating in a tough retail market as UK consumers were less willing to spend money against a backdrop of higher inflation and political uncertainty.
The John Lewis chairman, Sir Charlie Mayfield, said the retailer had not passed on to shoppers the full extent of its own rising costs. “Nobody should be surprised that this is a tough market for retailers. There’s any number of reasons for that,” he told BBC Radio 4’s Today programme.
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“The reason our profits are down is predominantly because of margin, and cost prices are rising. It’s a very competitive market, retail prices are not rising as fast.”
He added: “We don’t expect these headwinds to let up.”
Pre-tax profit at the group fell 53% in the first six months of the year, to £26.6m. When £56.4m of redundancy and restructuring costs were stripped out, pre-tax profit was down almost 5% at £83m as higher costs ate into margins. Group sales rose by 2.3% over the period, to £5.4bn.
While underlying profits increased 9.7% at the John Lewis department stores to £39.7m, Waitrose profits fell 17.4% to £101m as costs rose three times faster than a 1.5% rise in prices. The Waitrose boss, Rob Collins, said inflation in meat, fish and dairy had been very strong.
As the government prepares for a fourth round of Brexit negotiations with the EU, Mayfield said uncertainty was being felt in the wider economy.
“We should be under no illusions. Brexit is having an effect on the economy, no question. It’s the same for everybody and the main effects are sterling and confidence. Uncertainty is one of the consequences of this and of course businesses never like uncertainty because it makes it hard to plan for the future,” he said.
“I think we need to do justice to that uncertainty and there needs to be a serious parliamentary debate to figure out what kind of Brexit we’re going to have in the best interests of the country and the economy.”
He added later: “There is a very complex negotiation before us and the core principles of that need to be thrashed out in order to increase the chances of a successful conclusion to the negotiation. If not there is a greater risk of a disorderly outcome.”
John Lewis boss calls for a "serious parliamentary debate" on Brexit, saying uncertainty is damaging the economy #r4todaypic.twitter.com/aXpIx7vTEx — BBC Radio 4 Today (@BBCr4today) September 14, 2017
In March, when John Lewis announced full-year results for 2016, the bonus for staff was cut to just 6% of salary, the lowest level since the 1950s and down from 10% the year before. Mayfield said the second half of the year would be crucial to determining the staff bonus for next year, because the business makes two-thirds of profits during the latter half.
Mayfield said sales were rising so far in the second half, but warned a number of factors would weigh on profits.
“Sales growth has continued in the first few weeks of the second half. We are well set for our all-important seasonal peak, but we expect the headwinds that have dampened consumer demand and put pressure on margins to continue into next year,” he said.
“In addition, we will incur higher pension accounting charges in the second half year, as a result of low market interest rates. These will all impact our full-year profits.”
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