Online sales at John Lewis have grown 84% year on year between the middle of March and 15 April, amid the coronavirus outbreak.
Overall, John Lewis sales were down 17% year on year since the middle of March, and down 7% year on year since 26 January.
In its full-year trading update, John Lewis announced that profit before partnership bonus, tax, exceptional items and reporting standard IFRS 16 dropped by 23% year on year in the 12 months to 16 April 2020. John Lewis said this was a “weaker performance” than it had hoped for, driven by significant operating profit decline at John Lewis, which was partly offset by operating profit growth in Waitrose, and lower group costs.
Profit before tax grew by 25% to £146.4m, as a result of an increase in “exceptional profits” driven by the reduction in pension obligations following the decision to close the defined benefit section of the pension scheme.
Meanwhile, total revenues dropped by 1% “due to the challenging retail environment”. This drop was more pronounced at John Lewis, which experienced a decline in like-for-like sales of 1.8%, compared with 0.2% at Waitrose.
During the year the “Partnership Board” were awarded a bonus of 2%. The company said: “This was prudent and affordable and recognises the contribution made by partners working in the business today without creating risk for our future sustainability.”
John Lewis’ debt ratio improved to 3.9 times, the lowest level since January 2014. It continues to review plans to reduce it to around three times cashflow within four years.
“I wrote to you with the highlights of last year’s financial performance when I announced the bonus decision in March”, chairman Sharon White said. “With the outbreak of Covid-19, I wanted to give you the latest picture on our trading performance. I also wanted to say more about how we are supporting customers, partners, suppliers, and our communities at this time of national emergency.
“This is a time of great uncertainty and volatility and the full-year picture is impossible to predict. We are therefore looking at a range of different possible outcomes and how these might affect profits, sales and cash flow. We are confident that the future of the business is strong. Our short-term trading has though been significantly affected, principally because of the closure of all 50 John Lewis branches. John Lewis online remains open – providing essential goods and services to enable customers to live well at home – and online sales are substantially up on last year. But it has not been enough to offset the loss of shop trade. Demand at Waitrose has risen sharply but operating costs have increased too, especially as we have expanded online delivery.”
She added: “The pandemic has significantly changed the trading patterns in both brands. In Waitrose, we have seen strong sales growth up 8% year-on-year since 26 January.
“In John Lewis, trading has been mixed. With stores closed, we have seen a significant spike in our online sales which are up 84% year-on-year since the middle of March. The highest demand has been in areas linked to working and living at home like technology and food preparation but also in looking after and entertaining our children and keeping fit. However, these are some of our less profitable lines. We are buying more Scrabble but fewer sofas. Overall, John Lewis sales are down 17% year-on-year since the middle of March, and down 7% year-on-year since 26 January.
”Our worst-case scenario for the full year assumes significant sales decline between April and June, and weak sales thereafter. Over the course of the full year, this worst-case would result in a sales decline of around 35% in John Lewis, around double the current level, while at Waitrose it would result in a more modest decline of less than 5%.”
With regards to cash and liquidity, she said: “We started the financial year with just over £900m cash and investments in the bank and with access to a further £500m of undrawn committed bank facilities. Six weeks into the crisis, we are holding broadly the same level of cash and investments. But with such unprecedented trading volatility we have a range of actions that we are ready to take to secure the financial sustainability of the partnership.
“The government has introduced a 12-month business rates holiday for England and Scotland. This will save the partnership around £135m this financial year. The government has also deferred payment of VAT until March 2021, which will help our short term cash flow.”
The board has taken a steps to preserve liquidity. These include:
- Lowering planned stock intake in line with slower trading at John Lewis.
- Reducing operating costs, including cutting back on marketing spend by close to £100m.
- Minimising capital and investment commitments: capital and investment spend for 2020/21 will be more than £200m lower than originally planned.
- Furloughing more than 14,000 Partners whose jobs are temporarily no longer supported by the business.
- Negotiating with landlords regarding rent relief, including an immediate switch to monthly from quarterly payments.
- Working with our banking partners to consider how extra flexibility can be provided, should it be needed.
In addition, the executive team, non-executive directors of the partnership board, the independent directors and White will be taking a 20% cut in pay from April, initially for three months.
On Tuesday, John Lewis Partnership confirmed that 14,000 staff have been furloughed across the business due to the coronavirus lockdown, and that they will receive full contractual pay until the end of May.
With these actions and continued close attention, White said she is “confident that we have sufficient cash to operate successfully through a broad range of potential scenarios.”
The group also revealed that it paid out £939,773 to former managing director Paula Nickolds, who exited in January. The group also confirmed an £892,362 pay packet given to Rob Collins, who had been managing director of the group’s Waitrose grocery arm until he stepped down in October.
White added that the strategic review announced in March will now be accelerated and substantially complete by the summer. It will take account of changes in consumer behaviour to come out of the pandemic, such as a more pronounced shift to online and a desire to shop in more sustainable ways.
“The partnership has been trading for nearly a century. It has survived a world war and bombings, economic crashes and crises. Thanks to you, we shall also come through Covid-19 too and emerge stronger”, White added.