KBB sales slump pulls down John Lewis profits in 2018

John Lewis said sales of big-ticket items in its home category, which includes kitchens and bathrooms, shrank substantially in 2018 amid the political and economic uncertainty surrounding the Brexit process.

As predicted, the employee-owned retailer said full-year, pre-tax profits, excluding impairment charges and restructuring costs, plummeted – down almost 50% to £160 million for the 12 months ending January 26.

The partnership, which includes Waitrose supermarkets, said poor performance in its home division pulled down profits, which were also hit by margin pressure and rising investment costs in IT systems and new stores. It cut staff bonuses to just 3% of their salaries.

It said it had been preparing for the “operational implications of Brexit” for well over a year, and it was “in a good position for a managed transition”.

“This covers currency, tariffs, customs and labour,” it said.

“The main risk in an unmanaged transition is a strong fall in consumer confidence and the impact that has on trade. Given the current level of uncertainty, we expect 2019 trading conditions to remain challenging.

“We have built up a strong liquidity position at nearly £1.5 billion so that we have the financial headroom to mitigate the risks and make sure we can continue investing for the future.”

In its full-year financial statement, the partnership said the “market context continues to be challenging”, as it suggested its department store business had borne the brunt of heavy competitor discounting from October last year onwards.

As a result, it said sales in John Lewis and Partners were down 1.4% on a like-for-like basis.

It said: “Our foreign currency hedging, from before the EU referendum, rolled off and in spite of the resulting cost price inflation, we decided not to increase prices.

“At the same time, the market became significantly more promotional and we made sure our customers also benefited from those lower prices through our ongoing commitment to price competitiveness and ‘Never Knowingly Undersold’.

“We expect continued pressure on gross margins in 2019/20 before it rebuilds the following year.”

In John Lewis and Partners, the partnership said its strongest sales growth came in areas that had seen the greatest investments in new products and services. There was no mention of investment in its fitted bathroom or kitchen services and there was no mention of the home category in the partnership’s strategic plans for its department store business.

Zoe Mills, retail analyst at research firm GlobalData, said: “While consumers have been wary of spending on larger furniture items, value-focused retailers, such as Ikea, and design-led players like Made.com, are stealing share as they offer innovative and aspirational pieces.”

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