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UPDATE 2-UK's John Lewis cuts staff bonus to brace for difficult times
March 9, 2017 / 11:16 AM / 6 months ago

UPDATE 2-UK's John Lewis cuts staff bonus to brace for difficult times

* Partner bonus cut to 6 pct, lowest since 1954

* Operating profit incl. exceptionals lower

* To retain more profit to weather uncertain markets (Adds executive comments)

By Paul Sandle

LONDON, March 9 (Reuters) - Britain’s John Lewis cut its staff bonus to 6 pct, the lowest percentage payout since 1954, saying on Thursday that it needed to preserve cash to brace for difficult times.

The employee-owned retailer, which has 48 John Lewis department stores and 352 Waitrose food shops, said it expected inflationary cost pressures and competition to intensify this year and needed to defend itself against any downturn in spending.

It cut the staff bonus from last year’s 10 percent as it reported an 11 percent fall in operating profit including exceptional items at Waitrose and a 7.5 percent fall at John Lewis in the year to Jan. 28.

As customers increasingly choose to shop online the firm said it continues to invest heavily in this area.

Chairman Charlie Mayfield said John Lewis had grown its market share over the last year, culminating in an “encouraging market-beating performance over Christmas”.

It is the fifth consecutive year the bonus rate has been cut and is the lowest since 1954 when the rate was 4 percent.

The 86,700 staff will be paid the equivalent of around three weeks pay.

“We do not take the decision to reduce the bonus lightly,” Mayfield said.

“This allows us to maintain our level of investment in the face of what we expect to be an increasingly uncertain market this year,” he added.

John Lewis cautioned in January that the bonus was likely to be “significantly lower”, also pointing to import cost pressures from a weaker pound since last June’s Brexit vote.

Profit before the partnership bonus, tax and exceptional items increased 21.2 percent to 370.4 million pounds.

However, a large part of the increase was due to lower pension accounting charges. Excluding the charges, the growth was 1.9 percent.

In the five weeks since the reporting period ended, like-for-like sales were down 1.4 percent at both the department stores and Waitrose.

Consumers have reined in their spending as inflation rises, hitting retail sales.

Mayfield said, however, that the late timing of Easter - one of the most important drivers of sales of food, flowers, homewares and gifts - had skewed the numbers.

He said the true picture of trading would not be known until the end of April.

Rob Collins, managing director of Waitrose, said the fall in the value of the pound had clearly had an impact on input prices for food, but Waitrose would track the market very closely to remain competitive.

He said inflation was currently flat at Waitrose, while wider industry data indicated that inflation in the market was 1.4 percent in the 12 weeks to Feb. 26.

Paula Nickolds, the new managing director of the department stores, said the non-food market remained deflationary, but cost prices would move higher.

“There will be price movement during the course of the year but being ‘never knowingly undersold’ we will be the last one to move,” she said, referring to the chain’s long-standing price pledge.

All of Britain’s supermarkets are having to deal with higher import costs as the pound has fallen about 11.5 percent against the euro and 19 percent against the U.S. dollar since June’s Brexit vote.

Shares in Morrisons, Britain’s fourth biggest supermarket chain, fell on Thursday as its caution over rising costs overshadowed a first rise in annual profit in five years, delivered by a new management team. ($1 = 0.8233 pounds) (Reporting by James Davey and Alistair Smout; Editing by Elaine Hardcastle)

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