John Lewis profit drops 77% amid subdued consumer demand, margin pressure

Department store chain John Lewis cut its staff bonus to the lowest level in 64 years as annual profits slumped amid subdued demand and margin pressure.

In the 52 weeks to 27 January 2018, pre-tax profit tumbled 77% to £103.9m as the company took one-off hit of £111.3m, mainly for restructuring and redundancy costs of £72.8m and Waitrose branch impairments of £38.9m.

Profit before partnership bonus, tax and exceptional items was down 21.9% to £289.2m, largely due to lower gross margins in Waitrose driven by the weaker exchange rate and a commitment to competitive pricing.

Meanwhile, the partnership's bonus scheme was cut to 5% of salary, down from 6% in 2016/17 and 10% the year before and marking the fifth row in a year that it has declined.

Chairman Charlie Mayfield said: "We said in January 2017 that we were preparing for tougher trading conditions with weakness in sterling feeding through into cost prices, putting pressure on margin, and much higher exceptional costs as a result of an acceleration of planned changes. This was why we chose to reduce the proportion of profits paid as partnership bonus last year so as to absorb these impacts while continuing to invest in the future and in strengthening our balance sheet.

"We did both and I am pleased to say that despite lower profits, strong cash flow has enabled us to reduce our total net debts."

Looking ahead, conditions for this year weren’t expected to improve, with the group saying trading is likely to be volatile in 2018/19 amid ongoing economic uncertainty and no let-up in competitive intensity.

"We therefore anticipate further pressure on profits. However, the partnership will see benefits this year from the many changes we implemented in 2017/18, and the faster delivery of key innovations. Together these will strengthen our competitive position in 2018."