Waitrose profits down by more than a third

Waitrose has reported an annual profit fall of more than 30%, blaming cost pressures which were not passed on to customers.

Operating profit before exceptional items was down 32.1% to £172 million for the 52 weeks to 27 January.

The John Lewis Partnership-owned supermarket said the slide was 80% due to resetting gross margins in response to a weaker sterling exchange rate amid a drive to offer competitive pricing.

The remaining profit shortfall was down to a range of factors including branch management restructuring and investment in improving customer experience, it said.

Waitrose’s lower gross margins were blamed for a 21.9% fall in JLP’s profit before partnership bonus, tax and exceptional items, to £289.2 million.

Gross sales at Waitrose were £6.75 billion, up 1.8%, while like-for-like sales excluding fuel were fairly flat, increasing 0.9%.

Growth accelerated in the second half of the year, with the increase in like-for-like sales rising from 0.7% in the first six month to 1.1% in the second.

That improvement was driven by better like-for-like volumes resulting from lower prices on hundreds of products, explained the retailer.

However the like-for-like sales increase was less than inflation according to the Grocer Price Index, which was 1.9% for grocery products in the 12 months to the end of January, covering the same period as the Waitrose results.

Investment in customer experience had led to 2,500 new products, an easier-to-navigate website and 73 new sushi counters with another 49 coming this year.

The online grocery operation saw profitable sales growth of 10.9% following the investment in the site, Waitrose said.

The retailer also cited more in-branch tastings and one-day offers over Christmas, the introduction of self-service iPads for John Lewis Click and Collect orders in 140 shops, and plans for a new food innovation centre to open this summer at the head office in Bracknell.

The supermarket said: “This was a challenging year. We reset gross margin in response to the weaker sterling exchange rate and our commitment to competitive pricing. The resulting lower rate of gross margin was equivalent to more than 80% of the shortfall in operating profit before exceptional items, and it has also led to an exceptional branch impairment charge of £38.9 million.

“The remaining operating profit shortfall in the year was from a combination of different factors, including some short-term operational impacts from significant changes to our branch management structures and the introduction of more flexible working models in our shops.”

JLP’s report said gross sales were up 2%. The key results included: “Profit before partnership bonus, tax and exceptional items down 21.9% to £289.2 million, largely due to lower gross margins in Waitrose driven by the weaker exchange rate and commitment to competitive pricing.”

JLP chairman Sir Charlie Mayfield said: “As we anticipated, 2017 was a challenging year. Consumer demand was subdued and we made significant changes to operations across the partnership which affected many partners. However, their hard work throughout the year was key to delivering gross sales of £11.60 billion, up 2%, with like-for-like increases in both Waitrose and John Lewis. However, profit before partnership bonus, tax and exceptional items was down 21.9% mainly as a result of intensifying margin pressure in Waitrose.”