Increase in pay adds to costs

Higher staff costs hit profits at John Lewis

John LewisFierce high street competition and an increase in staff pay have hit profits at the John Lewis Partnership.

The retail bellwether said the “transformational change” under way in the retail sector means it expects trading to remain under pressure for the rest of this year and in 2017.

Although comparable sales for its John Lewis department stores rose by 3.1% in the first half of the year, they fell by 1% at Waitrose.

Operating profits for John Lewis stores in the six months to the end of July dropped 31.2% to £32.4m and were down 28.9% to £96.3m for Waitrose. Group pre-tax profits excluding exceptional items fell 14.7% to £81.9m.

Chairman Sir Charlie Mayfield blamed factors including increased staff pay along with investment in IT and its distribution network which he said were among the steps being taken to prepare the partnership for the future.

“These are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far. Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater implications,” he said.

“These decisions form part of our strategy to get ahead of the significant changes that are affecting the wider retail market and we are confident they will position us well for the future.”

At the company’s pay review in March, rates increased by 5.1% on average for the lowest paid staff which will lead to a £33m increase in annual costs.

For the first six weeks of the second half, partnership gross sales are up 3.8%. The company said while it expects to trade well compared to the market, it added the “structural changes in retail will not ease”.

> High street fashion giant Next saw a 0.3% drop in full-price sales in the first half but the 1.5% fall in pre-tax profits was less severe than market forecasts and the group has maintained its interim dividend.

Spring and summer fashion spending was challenging and volatile and full price sales since July have remained subdued. Next’s shares were down by over 3%.

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