Waitrose Sales Rise, But Costs See John Lewis Profits Fall 22%
UK retail group John Lewis Partnership, which operates John Lewis department stores and the Waitrose supermarket chain, saw profit before exceptionals fall 21.9% to £289.2 million in 2017, according to its full-year results, released today.
Although sales were up in both Waitrose (+1.8%) and John Lewis (2.2%) stores, the company says that profits declined sharply 2017, largely due to lower gross margins in Waitrose, driven by weaker exchange rates and commitment to competitive pricing.
"As we anticipated, 2017 was a challenging year," said Sir Charlie Mayfield, chairman of John Lewis Partnership. "Consumer demand was subdued and we made significant changes to operations across the Partnership."
"We said in January 2017 that we were preparing for tougher trading conditions with weakness in Sterling feeding through into cost prices, putting pressure on margin, and much higher exceptional costs as a result of an acceleration of planned changes."
Waitrose achieved gross sales of £6.75 billion last year, up 1.8% compared to 2016, with like-for-like sales, excluding fuel, increasing by 0.9%.
Sales growth accelerated in the second half of the year, driven by better like-for-like volumes after the retailer lowered the prices of hundreds of 'essential Waitrose' products.
However, operating profit fell 32.1% to £172 million, which the company attributes to its decision not to pass on all cost price inflation to its customers, as well as investments in its supermarkets.
In 2017, Waitrose made a number of investments in its store network, including the installation of 49 new in-store sushi counters. The retailer opened seven new branches and closed six.
Investment was also made in the grocer's e-commerce services, resulting in a 10.9% increase in online sales.
Waitrose developed more than 2,500 new products last year, and announced plans to open a new food innovation centre in summer 2018.
Looking ahead, John Lewis Partnership says that it expects trading to be volatile in 2018/2019, with continuing economic uncertainty and increasing competition.
As a result, the retail group is anticipating further pressure on profits.
In the first five weeks of the company's 2018 financial year, Waitrose sales were up by 2.7% and John Lewis sales were down 2.8%.
Sales at both retail chains were 'significantly impacted' by heavy snow in the UK last week.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Sarah Harford. Click subscribe to sign up to ESM: The European Supermarket Magazine.