John Lewis warns investment will take toll on profits

The chairman of the John Lewis Partnership has said the group might need to sacrifice short-term profits in order to invest in the business for the longer term.

The suggestion was made amid growing fears that the mutually-owned retailer will have to issue another profit warning because of disappointing trading.

Writing in The Gazette, John Lewis' in-house magazine, Sir Stuart Hampson says: "Our investment strategy is designed to secure a stronger partnership in the future, but I acknowledge that it's taking its toll on profits today – and that means less profit to share as a result.

"I firmly believe, however, that this is consistent with the approach taken by our business over the years, and that it's the way to develop our profit potential in the long term."

John Lewis recently reported reduced profits of £141m for last year, the fourth annual decline in a row. It has been investing heavily in store refurbishment and e-commerce.

Current trading is also poor in the group's department stores. Figures produced last week showed that sales growth in department stores is half the group's target. Sales in the 13 weeks to 27 April were 5.2 per cent up on the previous year, compared with a target of 9 per cent. If that performance continues it is possible John Lewis would have to issue a profits warning on its first-half numbers.

Though John Lewis is mutually owned by its staff, some of its bonds are traded in certain markets, meaning price sensitive information must be released as soon as possible.

Fortunately for the group, its Waitrose supermarkets division is performing ahead of expectations. Its sales in the first three months of the year are 5 per cent up on 2001, compared with a budget of 3 per cent. Total sales growth across the group is only marginally short of the target of 6 per cent.

The underperformance of John Lewis' department stores contrasts with a booming high street elsewhere. Fashion retailers have enjoyed one of their best spring seasons, helping groups like Marks & Spencer, Next and Arcadia report strong sales. But the warm weather may have affected sales of household items where John Lewis is usually strong. Its worst performing divisions are furnishing accessories and furnishing textiles. Its fashion sales in the first quarter are up just 5 per cent on last year, way below rivals.