Profits before bonuses, tax and exceptional items at the John Lewis Partnership – department store John Lewis & Partners and supermarket Waitrose & Partners – fell 45.4% to £160m for the year to 26 January.
The fall was a result of significant operating profit decline at John Lewis & Partners – down 55.5% to £114.7. This was driven by weaker home sales, lower gross margin and increased IT costs.
The group’s partners – as it calls staff – received a 3% bonus. It said this lower than usual amount would allow it to “continue debt reduction, maintain our level of investment and retains solid cash reserves”.
The John Lewis Partnership also cited the opening and running costs of two new stores, and the comparision with a large property profit made in 2017/18.
Gross sales at the partnership were up 1% for the year, to £11.7bn. Gross sales at John Lewis were up 0.7% to £4.9bn for the year, but like-for-like sales decreased by 1.4%.
Profit before partnership bonus and exceptional items at the wider group was down 37.7% to £227m.
The relaunch of John Lewis own-brand womenswear delivered sales growth of 12.9%, as a result of new product and in-store concepts, and enhanced partner training.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said: “In line with expectations set out in June, our Partnership profits before exceptionals have finished substantially lower in what has been a challenging year, particularly in non-food. Operating profit recovered strongly in Waitrose & Partners, up 18% (to £203.2m), mainly due to improved gross margins. However, it was down sharply, by 56% (to £114.7m), in John Lewis & Partners because of weaker home sales, gross margin pressure, higher IT costs, the property impact of new shops and lower profit on asset sales. Despite this, we managed cash tightly and reduced total net debts by £401.3m.
“This is part of our strategy to build up our cash reserves as a defence against uncertainty in the economy and to enable us to maintain annual investment at £400m-£500m per year. We have also made significant investment in our Partners during the year, particularly in leadership development, apprenticeships and pay, with our average hourly rate for non-management Partners rising to £9.16, 17.0% above the National Living Wage. We expect that average hourly rate of pay to increase by around 4.5% following our April 2019 pay review.
“While Partnership profits were down, there were several areas where we have seen performance move forward, particularly in areas where we have invested. In John Lewis & Partners the launch of our own-brand womenswear and expansion of personal styling offer has driven strong sales growth in Fashion, growing market share significantly. In addition, the investment in front line service delivered best ever customer experience ratings in John Lewis & Partners. In Waitrose & Partners, significant investment in waitrose.com, new customer smartphone apps and customer delivery services has led to a strong increase in online grocery sales of 14%, well ahead of the market, and increased online customer satisfaction.”