John Lewis blames Brexit for slide in home and EHT sales as it posts £25.9m profit loss
Published: 12 September 2019 - Fiona Garcia
Despite trading peaks over the summer period, the department store parent has reported a huge dip in profits during H1, as a result of subdued consumer confidence in the wake of Brexit woes.
Publishing its half-year results for the 26 weeks ended July 27, the John Lewis Partnership revealed it made a loss before Partnership Bonus, tax, exceptionals and IFRS 16 of £25.9million, down £26.7million on the previous year.
Whilst operating profit grew by £14.1million in the Partnership’s grocery business, Waitrose, it was a different story in department store chain, John Lewis & Partners, where operating losses before exceptionals and IFRS 16 increased by £42.5m to -£61.8million.
This change reflected the impact of “subdued consumer confidence”, said the retailer, with lower sales in categories such as home and electrical and home technology (EHT), where demand for more considered purchases has remained depressed. Higher investment in IT and cost inflation were also said to contribute to the decline.
The retailer warned: “Brexit continues to weigh on consumer sentiment at a crucial time for the sector, as we enter the peak trading period.”
At £465million, home sales were down 3.5% on the same trading period last year. With plenty of uncertainty still on the horizon, it may be unlikely the department store business will see enough of a pick-up in this category during H2 to match last year’s figures, when the department store chain posted sales of £1,085.8million for the year ended January 26, 2019.
Electricals and home technology saw a similar decline, with sales down from £578million, to £557.6million.
The retailer said: “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 and the renewal of key ranges in areas like home. 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, in an effort to bolster its offer, John Lewis has set out to create what it describes as, “a truly differentiated business in home improvement”, supported by the expansion of its Home Solutions scheme and the integration with Opun. In October, the retailer will also launch its first World of Design in its Peterborough store.
The range review in home will see the retailer “redesigning every part” of the offer, starting with the relaunch of upholstery. In a further investment in the category, John Lewis has grown the size of its home design team by 50% over the past 18 months and has announced plans to launch 3,000 new own-brand products this autumn.
Chairman Sir Charlie Mayfield said: “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. Total net debts have reduced by £469.2million compared to July 2018. This is due to strong cash generation and tight cash management… 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.”
The statement issued today also explained: “Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.”
John Lewis & Partners operates 50 John Lewis shops across the UK – comprising 37 department stores, 12 John Lewis at home and shops at St Pancras International and Heathrow Terminal 2 - as well as johnlewis.com. The retailer stocks around 350,000 separate lines in its department stores and on johnlewis.com across fashion, home and technology.