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John Lewis warns full-year profits will be hit by Brexit uncertainty as first-half profits halve

First-half Profits at John Lewis hit by reorganisation costs and Brexit uncertainty
John Lewis
John Lewis said it has not passed on the full costs of inflation to its consumers

John Lewis Partnership PLC saw first-half profits more than halve and warned that weak consumer spending will continue to drag on the business in the rest of the year.

The company, which owns the John Lewis department store chain and Waitrose supermarkets, reported a 53% decline in pre-tax profit to £26.6mln in the first six months of the year.

Profits were hit by £56.4mln of reorganisation costs and the impact of the slump in the pound following the Brexit vote. John Lewis said the pound's falls pushed up its costs and hit profit margins, while adding to inflationary pressures that have hurt consumer demand.

Excluding the reorganisation costs, pre-tax profit still fell 5% to £83mln due to cost inflation.

John Lewis department stores achieved a 9.7% increase in underlying profits to £39.7mln but Waitrose profits dropped 17.4% to £101mln as costs rose three times faster than a 1.5% rise in prices. 

John Lewis chairman, Sir Charlie Mayfield, said the company has not passed on the full extent of rising costs to its customers amid a competitive retail market.

Brexit uncertainty having an effect on economy, says chairman

Mayfield said Brexit uncertainty will continue to weigh as the UK negotiates its withdrawal from the European Union.

“We should be under no illusions. Brexit is having an effect on the economy, no question. It’s the same for everybody and the main effects are sterling and confidence. Uncertainty is one of the consequences of this and of course businesses never like uncertainty because it makes it hard to plan for the future,” he said.

“I think we need to do justice to that uncertainty and there needs to be a serious parliamentary debate to figure out what kind of Brexit we’re going to have in the best interests of the country and the economy.”

Turning to the second half, Mayfield said sales had risen so far but said profits will continue to be affected by softer consumer demand and pressure on margins. The group will also incur higher pension accounting charges in the second half year, as a result of low market interest rates.  

“These will all impact our full-year profits,” Mayfield said.

Tough restructuring task but glimmer of hope for UK retail sector, says analyst

Guy Ellison, head of UK equities at Investec Wealth & Investment, said the company’s profit decline is a clear indication of the scale of the restructuring task it faces.

“The UK retail sector has been under pressure so far this year but there are glimmers of hope. Next, for example, has today upgraded its forecasts for full-year sales and profits, despite the prior six month pre-tax profits slumping by almost 10%.”

READ: Next shares surge as the fashion retailer lifts full-year estimates

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