The intense price war in British retail is destroying John Lewis' profits

John Lewis Partnership, the owner of department store John Lewis, and supermarket chain Waitrose has reported a massive fall in its profits for the first half of 2016, blaming
“deep structural changes in the retail market” in the UK for its disappointing performance.
Profits before tax at the high street giant fell almost 75% in the first two quarters of the year to just £56.9 million ($75.2 million). It should be noted, however, that this number includes a £25 million charge to write off several sites that it had previously intended to develop, but has now decided against doing so.

Excluding that write down, profits still fell almost 15%, with the changing face of the way people shop, as well as fierce price competition in the supermarket sector, noted as the main reasons by the company.

Here are the key figures from the interim results statement:

  • Profits before tax: £56.9 million — down 74.6% year-on-year.
  • Profits before tax (excluding exceptional items): £81.9 million — down 14.7% y-o-y.
  • Gross sales: £5.3 billion — up 3.1% y-o-y.
  • Revenues: £4.67 billion — up 2.7%.
  • Operating profit: £113.7 million — down 58.3%

Commenting on the company’s performance in the results statement, Sir Charlie Mayfield, the chairman of the John Lewis Partnership said:

“There are far reaching changes taking place in society, in retail and in the workplace that have much greater implications.

“Our ownership structure makes it especially important that we manage the Partnership carefully and thoughtfully for the long term and our plans anticipate the impact of these bigger changes.”

John Lewis is the second major retailer this week to blame the state of the market in the UK for bad results after online grocer Ocado blamed a “very competitive” market for a squeeze on its profits.

“As the market remains very competitive, we are seeing sustained and continuing margin pressure and there is nothing to suggest that this will change in the short term,” CEO Tim Steiner said in a trading update released on Tuesday.

John Lewis was keen to note that, so far at least, the UK’s vote to leave the European Union has had no material impact on the business, with Mayfield saying: “These [the results] are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far.”

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