John Lewis makes loss, but fashion strong, firm can't mitigate tough Brexit
There's been a lot of speculation in recent days about just how bad John Lewis Partnership's results for the six months to July 27 would be, and we finally found out on Thursday.
The department store and supermarkets retailer, which is owned by its staff, said that its gross sales fell 1.2% to £5.42bn, while revenue was down 1.4% at £4.788bn. But even such a large sales number couldn't help it make a profit. The company lost £25.9m on a pre-tax, pre-exceptionals and IFRS 16 basis. That's compared to a small profit of £0.8m a year earlier.
The earnings report was titled “focus on long-term investment and success despite short-term profit pressures” and it’s clear that John Lewis, which doesn't have to worry about pressure from stock market investors, is determined to position itself for future growth and a retail environment that's very different from what it was just a decade ago.
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.”
But there's no denying that it faces challenges. While the Waitrose supermarkets seem to be holding their own, even though the market they operate in is extremely competitive, the eponymous department store chain has more problems, even though it also has some power categories that are growing fast.
John Lewis & Partners saw gross sales down 1.8% to £2.054bn in the period and revenue down 2.8% at £1.617bn. It saw operating losses before exceptionals and IFRS 16 widening by £42.5m to a loss of £61.8m, “reflecting lower sales in categories with more considered purchasing, cost inflation (including non-management Partner pay) well ahead of the level of sales growth and higher IT costs.”
Not that the business is likely to face a cash crunch at any time soon. The parent company has continued to strengthen its balance sheet, reducing its debts and managing cash tightly. It said it's in the strongest liquidity position it has been in for more than 10 years.
That's important because it means the business can continue to invest in the future. “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,” Mayfield added.
FASHION AND BEAUTY GROWTH
It all means John Lewis & Partners has been able to invest where it counts and as a result, it has seen strong sales growth in fashion and beauty and has “grown market share significantly as customers responded to our investment in own-brand redesign, new brands, advisory services and personalised shopping experiences.”
The company said that it saw it saw stronger H1 sales growth in areas in which it has made the greatest investment. It launched its second season of own-brand womenswear following the full redesign of the range last year and sales of that category have grown 5.7%.
It continued to roll out several advisory services including the trial of it Beauty Studio (beauty is another strong area and outperformed the market by 8.6%) and the rollout of personal styling experiences in John Lewis & Partners, which saw women's personal styling sales increase 34%.
Building on this, it will launch a new men’s personal styling experience at its Oxford Street flagship this autumn as the company also launches a revamp of its menswear offer.
But the Home department has been its big problem child with the company's weekly sales reports detailing sales fall after sales fall. What's the company doing about this? “We are redesigning every part of our range and have started with the relaunch of upholstery,” it said. “Having grown the size of our Home design team by 50% over the last 18 months, we will launch 3,000 new own-brand products this autumn.”
Clearly, the first half was a mixed bag but the company has historically made the majority of its profits in the second half of the year and that's expected to be the case this year.
Yet apart from being crucial for sales, the second half will also be important as the company continues its work to position itself for the future. This includes measures to address packaging waste in its supermarkets and the aforementioned renewal of key ranges in areas like menswear and home.
Over the next 12 months, it will also accelerate its transformation of the Partnership “to deliver innovation faster and increase emphasis on the competitive difference of Partners.”
The company has also been working to improve its online offer and in order to boost the speed and convenience of e-shopping, John Lewis & Partners’ customers can now return purchases to Waitrose & Partners delivery drivers at the same time as they receive their groceries. The company also said that its Click & Collect service “is loved by our customers, giving us confidence to explore this area further.” What that means is that it has trialled the service in six Co-ops and eight Booths shops and will extend these trials further to 50 Co-op shops before the end of October.
But we all know that any plans could be derailed if Britain leaves the EU without a deal. Should that happen, John Lewis said “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, Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period.”
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