Slower sales hit profits at John Lewis profits

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The Independent Online
FURTHER EVIDENCE of a slowdown in consumer spending emerged yesterday when John Lewis Partnership reported its first profits fall for five years, and official retail statistics revealed that high street spending remained weak in August.

Retail sales were up by 0.4 per cent in August from July, against an expected rise of 0.1 per cent. However, the figures for the three months to August were up just 2.6 per cent on the same period last year, the lowest growth for two years. The August figures showed falls in sales of household goods and textiles, clothing and footwear - areas which are quickly affected by falls in discretionary income or weakening confidence.

Food sales growth in the three months to August outpaced non-food sales compared with the same period last year, reversing a trend that has lasted nearly three years.

Analysts said the figures were difficult to interpret because of the poor summer weather, but were unlikely to support the case for an early cut in interest rates. "The underlying strength of high street spending is difficult to determine, but spending has certainly cooled since the spring," said Jonathan Loynes, economist at HSBC Markets.

Trevor Williams, economist at Lloyds TSB, said: "The trend of the last three months on the previous three months is the lowest since July 1996, and that is the point. A slowdown on the consumer side of the economy is taking place."

The sentiments were supported by half-year profits from John Lewis, which fell by 5 per cent to pounds 89.7m: the first profit fall at the group since 1993. Group pre-tax profits were boosted by a pounds 30m VAT refund, taking the total to pounds 119m.

John Lewis's department stores fell short of the company's own estimates with a 5.1 per cent rise in sales in the half compared to an estimate of 5.5 per cent. However, the figures were rescued by a good performance from its Waitrose supermarkets.

Sir Stuart Hampson, the chairman, blamed "the three Ws" - the poor summer weather, the football World Cup and the absence of windfalls from converting mutuals.

Sir Stuart said: "The partnership has had a succession of spectacular first-half results. Such a pace cannot be sustained indefinitely, and we knew that this year we would be facing more difficult trading conditions and extra costs to cover." He said that matching last year's bonus payments, which are made to John Lewis staff on the basis of profits, would be a significant challenge.

Next, the high street retailer which shocked the stock market with a profits warning in March, was also cautious on high street trading prospects yesterday as it reported a fall in profits from pounds 71.2m to pounds 50.2m. The slump was caused by buying mistakes which led to stock shortages in womenswear and childrenswear, said the company. Next shares fell by 37.5p to 407p, their lowest since late 1995.

David Jones, the chief executive, said: "Everyone tells me things are getting difficult, but we are well established enough to do better than most."

Julie Ramshaw, retail analyst at Morgan Stanley, said: "Next has delivered what it said it would but the market is not yet giving it the benefit of the doubt."

William Morrison, the Yorkshire supermarkets group, reported half-year profits of pounds 68.3m against pounds 61.7m in the period last year. The company is continuing to expand, with the prospect of adding 2,400 jobs. It hopes to add seven new stores next year.