Thursday 10 September 2015 8:02 am

John Lewis Group warns of lower profits for 2015 due to higher pension costs

The John Lewis Partnership has warned of lower profits this year on the back of pension charges and low price inflation.

The figures

John Lewis reported a 1.9 per cent increase in revenue to £4.5bn for the first half of the year ending 1 August against the same period last year.

Like-for-like sales were down 1.3 per cent in the first half of 2015 at Waitrose, but up three per cent at John Lewis.

Profit before tax and exceptional items fell by 26 per cent year-on-year to £96.7m.

Why it's interesting

John Lewis is widely seen as one of the UK's bellwether retailers. If JLP is struggling, there are sure to be plenty of other shops out there finding it hard too.

However the main reason for the dramatic drop in pre-tax profits is higher pension charges. For the full year these are expected to be around £60m higher than last year. So the retailer has said it is likely to see profit before partnership bonus, tax and exceptions down from £341.6m to between £270m – £320m, as strong performance is unlikely to offset this fully.

Still, the company expects to reduce new debt through “tight cash management”.

And John Lewis expects to perform well relative to the market, aided by new product ranges and enhanced online capability. Both Waitrose and John Lewis grew ahead of their respective markets in terms of sales, increasing market shares.

However supermarket sector conditions have been tough, thanks primarily to the price wars between the Big Four and the budget challengers Aldi and Lidl. Waitrose is not immune to this, JLP said, but the premium groceries business is still growing market share.

What John Lewis said

Sir Charlie Mayfield, chairman of John Lewis Partnership, said:

This has been a solid first half for the group in a difficult market. Both Waitrose and John Lewis are growing sales and increasing market share. Profit before tax and exceptionals was down by £33.9m to £96.7m, predominantly driven by higher pension charges arising from volatility in the market driven assumptions and last year's property profits.

Excluding these, at a trading level our profits were broadly level with last year, despite the turmoil in the grocery market. That reflects tight management of costs and the steps we have taken to strengthen the appeal of our trading brands, where we have seen an encouraging increase in the number of customers shopping with us.

In short

While the headline might look concerning, the drop in profits is not a sign that John Lewis is struggling with trading – in fact, as both Waitrose and the department store are growing market share, the retailer remains in rude health.