John Lewis profits fall on weak sales and IT costs
Written by Hannah McGrath
The John Lewis Partnership has announced that staff bonuses will be cut to three per cent, down from five per cent, after underlying profits fell by 45 per cent, driven by a slump in sales and higher IT costs.
Releasing the group’s results for the year to 26 January, chairman Charlie Mayfield said the decision to cut the flagship employee bonus by two per cent to the lowest level since 1954 came on the back on a “challenging year” for the business, particularly in its non-food sales.
Overall, an 18 percent rise in operating profit in operating profit at Waitrose to £203.2 million failed to offset a sharp 56 per cent decline in operating profits in the John Lewis department store network, which fell to £114.7 million.
For the partnership as a whole, profit for the year, excluding bonuses, tax, and one-off items was down by 45 per cent to £160 million.
In a statement, Mayfield said the weak performance at John Lewis was down to: “weaker home sales, gross margin pressure, higher IT costs, the property impact of new shops and lower profit on asset sales”.
He said a reduction in the bonus paid to its 83,000 staff members, known as ‘partners’, would enable the company to “continue debt reduction, maintain our level of investment and retains solid cash reserves to cope with the continuing uncertainty facing consumers and the economy”.
The group invested heavily in upgrades to Waitrose’s online grocery business over the course of 2018, launching new customer smartphone apps and delivery services, resulting in a 14 per cent increase in online grocery sales.
The improved outlook for Waitrose’s online and delivery business comes after Ocado confirmed it had signed a £750 million agreement with rival premium grocer Marks and Spencer, after its longstanding online and delivery contract with Waitrose comes to an end in September 2020.
Mayfield also confirmed that a further five Waitrose stores would be sold to other retailers, as part of the group’s plans to deprioritise investment in physical retail space.
Mayfield added: “We expect 2019 trading conditions to remain challenging but are confident in our strategic direction and customer offer across both brands.”