The John Lewis Partnership slumped to a first half loss of £99m driven by soaring inflation, as the department store group warned a “uniquely uncertain” outlook in the run-up to Christmas would put the staff annual bonus at risk this year.
The group, which is staff-owned and includes the Waitrose supermarket chain, made a profit of £69m in the same period to 30 July last year.
“No one could have predicted the scale of the cost of living crisis that has materialised, with energy prices and inflation rising ahead of anyone’s expectations,” said Sharon White, chair of John Lewis Partnership. “As a business, we have faced unprecedented cost inflation across grocery and general merchandise.”
JLP warned the outlook for the rest of the year was “uniquely uncertain” owing to the cost of living crisis and its impact on discretionary spending, particularly on its key Christmas trading period.
White warned that the business, which is “heavily skewed” toward the so-called golden final quarter in the run-up to Christmas, will need to substantially outperform in the second half of its financial year for staff to receive an annual bonus.
“A successful Christmas is key for the business given the first half,” she said. “We will need a substantial strengthening of performance, beyond what we usually achieve in the second half, to generate sufficient profit to share a partnership bonus with partners. Much will depend on the wider economic outlook and consumer sentiment.”
The group said the first half loss was down to two trends.
While there was an uplift in the number of customers year on year in the first half – up 6% at Waitrose and 4% at John Lewis – consumers chose to spend less due to high inflation while costs have dramatically increased. JLP said it had not passed on its own rising costs to customers. For example, it froze or reduced prices on more than 95% of school uniform items, “conscious that these are an essential item”.
A wider post-pandemic trend has also emerged with customers choosing to move their discretionary spending away from “high margin, big ticket household items to restaurants and holidays – from dining room furniture to dining out,” the group said.
Waitrose sales fell by 5% year on year to £3.6bn as operating profit fell by more than £90m to £432m.
While the number of transactions by customers grew by 14%, the average basket size is a fifth smaller than a year ago as increasingly cash-strapped consumers tighten the purse strings. Nearly 70% of baskets include a product from Waitrose’s lower cost Essential range.
At John Lewis sales rose 3% to £2.1bn as shoppers flooded back to its high street stores, enabling the business to keep profits flat at £295m.
The share of sales in shops averaged 41%, compared with 26% in its last half-year results and 60% pre-pandemic, fuelled by its stores in city centres rebounding strongly as more people return to offices.
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However, the cost of living crisis fuelled a 28% increase in sales of its value brand Anyday. And energy saving items proved a hit with consumers, with sales of air fryers up 56% and smart thermostats up 8%.
Fashion has proved to be the strongest performing category, with sales up a quarter year on year, as consumers purchased holiday wear for travel and holidays.
John Lewis, which earlier this month replaced the almost century old “Never knowingly undersold” strapline for “All life’s moments” to reflect changing spending habits, said that overall customer numbers climbed by 4% to 12.2 million – an increase of almost 500,000 shoppers year on year.
The group, which said it is investing £500m in keeping price rises down this financial year, also announced measures to help staff cope with the cost of living crisis.
Partners will receive a one-off cost of living support payment of £500 for full-time workers, pro-rata for part time. Entry-level partners will also receive a 4% pay rise, which will cost the business £10m in the second half of this financial year.