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Waitrose drags down John Lewis Partnership annual profit

John Lewis Partnership plc has releases its unaudited results for 52 weeks ended 27 January 2018, showing gross sales growth of 2%, but profit before exceptionals were down by 21.9% to £289.2m.

Although the group saw increased customer numbers across John Lewis and Waitrose, the fall in profit was largely due to lower gross margins in Waitrose driven by the weaker exchange rate and commitment to competitive pricing.

Waitrose achieved gross sales of £6.75bn, up 1.8%, with like-for-like sales, excluding fuel, up by 0.9%. Like-for-like sales growth accelerated in the second half, increasing from 0.7% in H1 to 1.1% in H2. This improvement was driven by better like-for-like volumes, as the brand improved its competitiveness by lowering the prices of hundreds of essential Waitrose products.

Operating profit before exceptional items was £172.0m, down 32.1%, held back primarily by lower margins due to our decision not to pass on all cost price inflation to our customers, and by investments in customer experience.

In-store innovation included the roll out of the sushi counters. There are now 73 sushi counters, with 49 opening in the year.

During the period, Waitrose opened seven shops and closed six sites.

The online grocery operation achieved strong profitable sales growth of 10.9%, with a marked acceleration in the second half.

The brand developed more than 2,500 products in the year, and announced plans for a new food innovation centre, due to open in summer 2018, at the head office in Bracknell.

John Lewis had a strong year, with sales outperforming the BRC market by 1.4%. Gross sales were up 2.2% to £4.84bn, with like-for-like sales growth of 0.4%. Operating profit before exceptional items was £254.2m up 4.5%.

Sir Charlie Mayfield (pictured), Chairman of John Lewis Partnership, commented, 'We said in January 2017 that we were preparing for tougher trading conditions with weakness in Sterling feeding through into cost prices, putting pressure on margin, and much higher exceptional costs as a result of an acceleration of planned changes.

'This was why we chose to reduce the proportion of profits paid as Partnership Bonus last year so as to absorb these impacts while continuing to invest in the future and in strengthening our balance sheet. We did both and I am pleased to say that despite lower profits, strong cash flow has enabled us to reduce our total net debts.

'We expect trading to be volatile in 2018/19, with continuing economic uncertainty and no let up in competitive intensity. We therefore anticipate further pressure on profits. However, the Partnership will see benefits this year from the many changes we implemented in 2017/18, and the faster delivery of key innovations. Together these will strengthen our competitive position in 2018.'