John Lewis Partnership (JLP) delivered its full-year results on Thursday, but given that we already knew they weren’t going to be good, they were less of a shock than they might have been.
Not that the company is making a loss, but its sales and profits have fallen and given that it was one of the most successful players in UK retail just a few years ago, its profits collapse is worrying.
The largest employee-owned business in the UK (and among the largest in the world) said the year to January 25 saw the company making pre-tax, pre-exceptionals profit of £123 million, which was as much as 23.1% lower than in the previous year. It was also weaker than it had hoped for and it announced a staff bonus of just 2%.
The earnings reduction was driven by the “significantly reduced profitability” in its John Lewis department stores unit, while its Waitrose supermarkets turned in “a solid performance”.
DEPARTMENT STORES WRITE-DOWN
It was the third year of lower profit across JLP as a whole and also came with a one-off write-down in the value of its John Lewis shops to the tune of £123 million.
This was “principally as a result of shops playing less of a role in driving online purchases,” which is an interesting statement given that many rival retailers are currently saying their shops are playing a bigger role in driving online purchases. It’s frustrating that JLP didn’t expand on this.
The issues at John Lewis mean that the company has launched a strategic review and while there’s no suggestion at the moment of any department stores closing (even though it has closed some Waitrose stores and announced more closures on Thursday), we have to assume that this isn’t being ruled out long term. The company did say that “we will look at ‘right-sizing’ our store estate across both brands, through a combination of new formats and new locations; repurposing and space reductions of existing stores; and closures, where necessary”.
One thing the review will include for the department stores specifically is a plan to fix the ailing Home department. This has delivered a very long succession of declining sales on a weekly basis, as we could see back when the company used to report weekly sales (it stopped doing that earlier this year).
JLP chair Sharon White said that “there are areas of the business where we know we need to serve customers better. In John Lewis we will be refreshing our Home offering, introducing more inspirational and contemporary ranges with improved pricing and delivery. We will also be making improvements to John Lewis online to make it easier to shop”.
And while the company is planning to move its two brands closer together and slim down their operations to make them more efficient and to cut costs, White also said that it will definitely retain both brand names. For good measure, she also added that the company will continue to remain an employee-owned business, despite some recent speculation that alternative ownership structures might be explored in order to help the company raise finance.
Looking more closely at the firm’s figures, as we’ve said, pre-tax profit before exceptional items and IFRS16 plummeted, although pre-tax profit with these items included was actually up 24.8% at £146 million. Gross sales were down 1.5% at £11.545 billion and revenue dropped 1.6% to £10.151 billion. And the company’s total net debts also fell by 8.6% to £2.451 billion.
Those figures cover the group as a whole, but looking specifically at the John Lewis department stores and webstore operation, operating profits before exceptionals and IFRS16 were down by as much as £75 million to just £40 million. Gross sales fell 2.1% and like-for-like sales dropped 1.8%. As mentioned, weaker sales in Home were a big problem, but the Electricals & Home Technology operation also saw it sales falling. We have to assume from this that the Fashion department turned into a better performance, although the company didn’t actually specify this either way.