John Lewis freezes capital spending after profits slump 26% to £280m

Click to follow

The John Lewis Partnership (JLP) is to take an axe to its cost base after unveiling a 26 per cent fall in full-year profits and deteriorating current trading at its eponymous department stores and Waitrose supermarket chain, as it warned of a "very difficult" year ahead.

Despite the profit slump, JLP paid its 69,000 staff a bonus equivalent to 13 per cent of their annual salary from a bonus pot of £125.5m, although this was down on last year's 20 per cent payment. For the 53 weeks to 31 January, JLP posted a profit before exceptional items down by £100.2m, or 26 per cent, to £279.6m.

Charlie Mayfield, the chairman of JLP, said its capital expenditure would be "roughly the same" this financial year, following a 10 per cent increase to £404m last year. "Our expectation is that the first half [of 2009] will be very difficult. But there is the possibility that we'll see some stability in the second half and some improvement as it goes on," Mr Mayfield said.

Last month, John Lewis started a consultation process with up to 540 non-customer facing support staff at its 27 department stores, although staff will be offered redeployment or retraining. Last year, the department store reduced its headcount by 1,600 through not replacing staff. Meanwhile, Waitrose has trimmed staff hours in response to declining sales volumes.

However, John Lewis will create 700 jobs when it opens a new store in Cardiff in September and 300 positions at a new distribution centre to be unveiled in Milton Keynes in May.

John Lewis directors blamed cautious property developers for a delay in its store expansion programme beyond a new department store in Stratford, near the London Olympic site, in 2011.

JLP's total sales rose by 3 per cent to £6.97bn over the 53-week period. However, City analysts expect rival Marks & Spencer to deliver full-year pre-tax profits down by more than 40 per cent to as low as £560m this year.

Andy Street, the managing director of John Lewis, said fashion was particularly strong, but it struggled in homewares. He said: "We definitely won market share [in fashion]. I will let you surmise whether our performance is a mirror image of M&S's travails."

At John Lewis, operating profit, excluding property gains, fell by £54.6m, or 27.4 per cent, to £144m over the 53 weeks, as it opened new stores and faced fierce price competition from rivals.

Waitrose's operating profit fell by 3.4 per cent to £211.6m, but sales rose by 5.2 per cent to more than £4bn for the first time. The grocer will open 22 new stores in 2009, creating 4,000 new jobs.

Mark Price, the managing director of Waitrose, said it had "seen quite a big influx [of customers] from M&S" and that customers were trading down. "People are downtrading into supermarkets from eating or drinking out. Our beer, spirits and tobacco sales are up 8 per cent [in 2008 and 2009]."

For the five weeks since 31 January, like-for-like sales are down by 8.8 per cent at John Lewis and 0.6 per cent lower at Waitrose.