John Lewis stores hit by economy worries

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The John Lewis Partnership said today its department stores had borne the brunt of the housing market's woes as first-half profits fell by more than a quarter.

The group's John Lewis chain saw like-for-like sales fall 1 per cent in the six months to July 26, with home goods down 5 per cent in the struggling property market.

The partnership, which also owns the Waitrose supermarket chain, said overall pre-tax profits had slipped 27 per cent to £108 million.

Chairman Charlie Mayfield expects the rest of the year to be "challenging" and is cautious about the consumer outlook until the end of 2009.

Department store operating profits fell 34 per cent to £40 million, although the chain reported a slight 0.4 per cent improvement in sales growth in the six weeks since the end of July.

The stores will be much less dependent on "home" goods for the rest of the year, the partnership added. There will be a bigger role for better-performing fashion lines, where comparative sales rose 5 per cent, as well as gifts in the run-up to Christmas.

The business is still investing in new outlets despite the downturn, opening its latest department store in Leicester last week. Online sales have also thrived, up 30 per cent.

But the more upmarket Waitrose supermarket lost share in recent months as shoppers look for cheaper options. Waitrose's like-for-like sales were 2.5 per cent ahead in the first half, but this has swung to a 1.1 per cent fall in the six weeks since the end of July.

The decline comes despite £30 million spent on lower prices and promotions to protect customers from the full effect of food price inflation. Sales of its premium "good as going out" range jumped 33 per cent, with beef also rising 5 per cent.

Bosses said they would continue the promotional drive at Waitrose in the second half to "improve price perception" among shoppers who consider the chain a dearer option.

John Lewis has a unique structure which means all 69,000 permanent staff are "partners", who share the ownership and profits of the business.

Staff shared a record £181.1 million bonus pot in March, although this is likely to fall in the much tougher retailing environment this year.

The partnership has 27 John Lewis department stores and 192 Waitrose supermarkets.