John Lewis Partnership has warned its pre-tax profit could fall by as much as 21% this year due to higher pension charges and the tough trading environment.
It estimates that pension charges for the full year to January 30, 2016, will be about £60m higher than last year. Pre-tax profit before exceptional items is therefore expected to be between £270m and £320m, compared to £342.7m in 2014.
Group pre-tax profit before exceptional items was down 26% to £96m in the half-year ended August 1.
Gross sales across John Lewis and Waitrose were up 2.1% to £5.1bn. Excluding Waitrose, gross sales at John Lewis grew 3.8% to £1.9bn, with like-for-likes up 3%. Johnlewis.com sales grew 17.1% to £647m, but store sales decreased 1.8%.
Fashion performed particularly well, up 7.5% as the increase in John Lewis’s own-brand offer continued to pay dividends. Menswear was particularly strong, up 10.5%, with John Lewis Kin tailoring up 23.9%. A new womenswear collaboration with designer Bruce Oldfield started in September.
However, the department store chain’s operating profit before exceptional items fell 16.3% to £47.1m, partly due to restructuring costs resulting from its move to centralise its distribution operations. It is closing two sites in Milton Keynes next year, affecting approximately 250 jobs.
John Lewis has set aside £4m to pay for future redundancy costs in case it is unable to redeploy these members of staff elsewhere in the business.
“This is a theoretical provision; we work very hard to redeploy people,” emphasised chairman Charlie Mayfield.
John Lewis Partnership had net debt of £664.6m, 4.3% lower than July 2014, despite the issue of a £300m bond in December 2014. Net proceeds were contributed to the pension scheme. It now has a pension deficit of £1,156.4m, 7.4% lower than January 2015.
During the year, John Lewis opened a new online distribution centre in Coulsdon, south London, and announced plans to build a third national distribution centre in Milton Keynes, resulting in the closer of the two existing sites.
John Lewis also expanded internationally, opening shop-in-shops in Singapore and the Philippines.
A new John Lewis will open in Birmingham on September 24 following a £35m investment.
On Tuesday, John Lewis announced it had reshuffled its senior management team, moving retail director Andrew Murphy into the newly created role of group productivity director.