John Lewis profits down by 26pc as pension fund costs soar

John Lewis. Picture: Sean Dempsey/PA Wire

John Lewis. Picture: Sean Dempsey/PA Wire - Credit: PA

John Lewis Partnership has posted a 26pc slide in half-year profits after being hit by costs of its staff pension fund and warned full-year results would also be sharply lower in a tough retail market.

It said trading at its Waitrose supermarket chain came under pressure amid 'turmoil' in the sector, with comparable store sales down 1.3pc - the first fall for seven years.

The partnership said underlying profits sunk to £96m in the six months to August 1 as recent stock market woes impacted its pension fund and left it facing higher charges.

It said that after stripping out these costs and one-off boosts from property sales last year, trading profits were broadly level in the first half as a 3pc rise in sales at its department store chain helped offset the supermarket woes.

But it said supermarket trading was set to remain tough as the major players wage a fierce price war to compete with the increasing might of discounters Aldi and Lidl.

The difficult trading and an extra £60m of pension fund charges this financial year are expected to drive annual pre-tax profits to between £270m and £320m against £342.7m previously.

Sir Charlie Mayfield, chairman of John Lewis Partnership, said: 'Conditions in the market will remain difficult, especially in grocery where there is little sign of any price inflation.'

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He added: 'For the full year, pension charges will be approximately £60m higher than the comparable figure last year, predominantly arising from volatility in the market-driven assumptions.

'In the current market, even a strong trading performance is unlikely to offset this fully.'

The figures come as John Lewis battles to plug a £1.12 billion hole in its company pension fund, with recent heavy falls in equity markets hitting the fund further.

John Lewis said the deficit had shrunk by 7.4pc or £92.7m since January, but its funding costs will still rise over the full year.

The group, which is employee-owned, is moving to a combined defined benefit and defined contribution pension to cut its soaring costs for the scheme.

It said: 'The pension continues to be one of the most important benefits offered to partners, but it also accounts for the greatest single investment made each year by the partnership.'

Half-year figures showed its 44-strong department store business suffered a 16.3pc slide in earnings to £47.1m, while shop sales excluding fell 1.8pc - ending four years in a row of growth.

The group said the sales fall came as it faced tough comparisons with a year earlier, when trade was boosted by its 150th anniversary celebrations.

The Waitrose arm, which has 340 stores, grew earnings by 0.6pc to £135.5m as it kept a tight lid on costs, although the group said it struggled against 'falling prices and changing customer shopping patterns'.

Its online supermarket sales fell 13pc year-on-year in the first half.