John Lewis Partnership profits before tax and exceptional items fell 98.8% to £1.2m in “the most promotional market we’ve seen in almost a decade”, said chairman Sir Charlie Mayfield.
He blamed the commitment to John Lewis & Partners’ “Never Knowingly Unsold” promise as one of the reasons for the slump.
Gross sales across the business, which includes John Lewis & Partners and Waitrose & Partners, rose 1.6% to £5.5bn for the six months to 28 July compared with the same period last year. Total net debt was £700m than a year ago.
Mayfield said the profits are in line with what the firm said they would be at the strategy update in June but underlined: “These are challenging times in retail. We’re continuing to improve our offer for customers, while ensuring we have the financial strength to continue developing our business going forward.”
The profit slump was driven mainly by John Lewis & Partners, where gross margin has been squeezed substantially, he said.
“The pressure on gross margin has predominantly been from our commitment to maintain price competitiveness,” he explained.
“This reflects our decision not to pass on to our customers all cost price inflation from a weaker exchange rate and from our ‘Never Knowingly Undersold’ promise, where we have seen an unprecedented level of price matching as other retailers have discounted heavily.”
Profits at John Lewis & Partners were also impacted by opening new stores and higher IT costs, but also from lower store profits compared with last year.
Mayfield said he expected full-year profits to be substantially lower than last year.
Fashion sales were up 1.2% during the period. Sales increased 4.1% in womenswear and 12.2% in own brand.
John Lewis & Partners recently has launched its largest own brand collection to date for autumn 18 and plans to build a £500m own-brand fashion business.