The John Lewis Partnership has recorded a sharp fall in profits for the first half of the year, citing “deep structural challenges” in the retail market.
Pre-tax profits fell 14.7% to £81.9m in the six months to July 30 and are expected to remain under pressure this year and next.
The Partnership, which also includes Waitrose, said its “commitment to competitive pricing, excellent service, maintaining pay differentials and investing for the long term” held back profits.
Like-for-like sales at John Lewis department stores rose 3.1% during the half year, but operating profit fell 31.2% to £32.4m, with more than half of this decline due to a £150mn investment made at Magna Park, where it has built two new distribution centres.
Sir Charlie Mayfield, chairman of John Lewis Partnership, commented: “We have grown gross sales and market share across both Waitrose and John Lewis, but our profits are down. This reflects market conditions and, in particular, steps we are taking to adapt the Partnership for the future. These are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far. Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater implications.
“Our ownership structure makes it especially important that we manage the Partnership carefully and thoughtfully for the long term and our plans anticipate the impact of these bigger changes. Evidence of that is already showing within these results and will become increasingly evident as we implement our long-term strategy.”
John Lewis said its first half profits are always lower and often more volatile than in the second half of the year, which typically accounts for at least two-thirds of its annual profits.
“We have also decided to prioritise a number of key areas of investment including in IT, our distribution network and in pay, as well as making a shift towards our existing stores in Waitrose which has resulted in exceptional property asset write-downs,” the group said.
“These decisions form part of our strategy to get ahead of the significant changes that are affecting the wider retail market and we are confident they will position us well for the future.”