March 11, 2009 / 9:39 AM / 11 years ago

John Lewis says 2009 looks tough as profits slump

LONDON (Reuters) - Department stores and supermarkets group John Lewis said 2009 would be another difficult year with intense price competition as 2008 profits slumped by a quarter and its staff bonus was slashed.

A couple look into the window of a John Lewis store in Edinburgh, Scotland March 11, 2009. The department stores and supermarkets group John Lewis said 2009 would be another difficult year with intense price competition as it posted a 26 percent slump in 2008 profit and slashed its staff bonus. REUTERS/David Moir

John Lewis Chairman Charlie Mayfield said on Wednesday the situation might improve in the second half of the year.

“I think there is a possibility that we’ll see a more stable performance in the market in the beginning of the second half and possibly some improvement as the second half goes on,” he told reporters on a conference call.

He said the retailer remained committed to its expansion plans and had the funds to achieve them, with “substantial headroom” on facilities of 1.25 billion pounds.

The 145-year-old employee-owned group, viewed as a bellwether for the retail industry, cut its bonus to 69,000 staff to 13 percent of salary from 20 percent last year, reducing the payout to 125.5 million pounds, equal to just under seven weeks pay.

It made a profit before tax and exceptional items of 279.6 million pounds in the year to January 31, a decrease of 100.2 million pounds, as it cut prices to defend its market share.

John Lewis’ 27 UK department stores pursued its “never knowingly undersold” price matching policy, while its chain of 198 Waitrose supermarkets cut prices by 30 million pounds.

Many retailers are struggling as indebted shoppers curb spending in an environment of soaring unemployment, falling house prices and fears of a long and deep recession.

John Lewis’ total sales increased 3 percent to 6.97 billion pounds but fell 3.4 percent at the department stores on a like-for-like basis and rose just 0.4 percent at Waitrose — well below the industry average.

Operating profit at the department stores fell 27.4 percent to 144.4 million pounds as demand for home-related goods was hit by the slump in the housing market, while profit at Waitrose fell 3.4 percent to 211.6 million pounds.

Mark Price, Managing Director of Waitrose, said that in 2008 the chain narrowed the gap between its prices and those of rivals J Sainsbury and Tesco by 2.5 percent and 3.3 percent, respectively.

The firm, which on Monday launched a lower priced “essential Waitrose” range of 1,400 staple products, would cut prices by up to 50 million pounds this year.

“Compared to our size these are really significant investments in repositioning Waitrose as being affordable to a greater number of people,” Price said.

John Lewis’ sales have fallen since the year end, with like-for-like sales at the department stores down 8.8 percent in the last five weeks and those at Waitrose down 0.6 percent.

The group plans to open 22 new Waitrose stores this year, creating 4,000 jobs, and said new department stores in Cardiff and at the Olympic site in Stratford, east London, were on track to open in September 2009 and 2011, respectively.

However, eight other projects have been delayed by developers.

“We are committed to those projects but I cannot be certain when we will be able to actually deliver them alongside our development colleagues,” said department stores Managing Director Andy Street.

Mayfield refused to rule out further job cuts in the department stores. “The Partnership has always taken an approach which is we need to remain competitive ... We’re constantly looking at ways to make our business more efficient.”

A distribution centre is being closed in Stevenage, impacting 319 jobs, while talks are ongoing to streamline “supporting activities” at stores.

Editing by Mark Potter and Karen Foster; Editing by David Cowell

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