John Lewis upbeat on higher 2016 sales and profits, but challenges lie ahead
The John Lewis department store chain and its online ops were the standout performers for the John Lewis Partnership in the year to January 28 as the group’s Waitrose grocery stores proved less buoyant, it said Thursday.
But the figures were not quite the untarnished triumph that we have become used to from John Lewis as the company faced the same headwinds that have battered the rest of UK retail. And news that the department store chain’s like-for-like sales are down slightly so far in the new financial year underlines those challenges.
But before we look at this year, what went on last year? The company, which is fully owned by its staff, said its total sales rose 3.2% to £11.374bn in the previous financial year while sales at the John Lewis department stores business rose 4% to £4.741bn.
And the department store chain’s like-for-like sales were much better than those at Waitrose too with a 2.7% rise compared to a 0.2% dip at the grocery chain. On an upbeat note, the company also said that both businesses achieved market share increases.
The firm’s profit before Partnership Bonus, tax and exceptional items was up 21.2% to £370.4m. But that figure was flattered by lower pension accounting charges. After excluding these and other accounting charges, its profit before exceptionals increased just 1.9%, although given the firm’s “trading pressures and investment in pay” it seemed to be pleased with that slender increase.
But it said the Partnership Bonus of £89.4m for the year will be only 6% of salary, which is more than three weeks' wages, this year, down from 10% last year.
JOHN LEWIS CHAIN STRONGER
Against a backdrop of a “changing and competitive retail landscape”, the John Lewis chain and its popular web store continued to outperform the market last year as its total and like-for-like sales figures show.
But its operating profit before exceptional items was 2.8% down at £243.2m as it invested in the supply chain “to ensure we were able to support a large, faster and more convenient multi-channel business.” The company said the benefits of this showed in the second half of the year, as operating profit before exceptional items rose 3.8%.
During the 12-months, its customer numbers increased by 2.7% to 12.1 million and all key product areas saw gross sales growth with Fashion strong.
Fashion sales were up 3.8% with womenswear up 6.8% as its higher-end Modern Rarity line launched and immediately boosted sales in the process. It was also helped by being the first high street retailer to stock online brands Hush and Finery. A £9m investment in its beauty halls bolstered Beauty sales too with an increase of 6.7%.
The chain opened two new shops in Chelmsford and Leeds (described as its “most experiential shop to date”), as well as its second Beauty spa. Later this year it will open a shop in Oxford.
Sales in its shops were down 1% but this was balanced as total online sales were up 16.2%.
UPBEAT CHAIRMAN DESPITE SLOWER NEW YEAR
Chairman Sir Charlie Mayfield was upbeat about the sales and profits figures, so why has the bonus been cut?
He said the board has decided to retain more of its annual profits in order to strengthen its balance sheet. And the balance sheet certainly benefitted with net debt down 32.7% (or £121.9m) compared to January 2016, at £250.6m.
“This allows us to maintain our level of investment in the face of what we expect to be an increasingly uncertain market this year, while absorbing the costs associated with adapting the Partnership for the future,” the chairman said.
He also said the firm has continued to put more money into pay. During the year, average pay rates for its non-management Partners rose 5%.
And as already announced, the company is also investing in building business for the future and has a number of initiatives to do this, including giving more sales staff technology (ie iPhones) to allow for faster stock checking.
But despite its upbeat stance, it is clear that John Lewis as a group and the department store chain in particular has challenges on the horizon.
Overall for the first five weeks of the year, group gross sales are up on last year, but only by 0.5%, and like-for-like sales at the John Lewis chain are down 1.4%.
The company said that in the year ahead, trading pressures “will continue as a result of the wider changes taking place in retail” and it sees inflation, along with intense market competition as key factors here.
Sir Charlie Mayfield said the two major influences are “pricing, where the rate of change in selling prices is likely to be significantly slower than the rate of change in input costs” due to the falling value of the pound, and “the continued shift from shops to online.”
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