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John Lewis Warns on Supply Chain While JD Sports Reports Record Profits

In the U.K, John Lewis partnership is slowly turning things around while JD Sports raised its guidance on record first-half profits.

John Lewis Partnership

John Lewis Partnership looks to be turning the corner with first-half profits countering a year-ago loss, but warned of “significant uncertainty” amid the ongoing Covid-19 pandemic.

“Traditionally, our profits are skewed to the second half of the year because of the importance of Christmas, especially in John Lewis. As we look ahead, there is significant uncertainty,” John Lewis chairman and parent Sharon White said. “Like the whole of retail, we are managing global supply chain challenges and labour shortages. We are seeing inflationary pressures, which we expect to persist.”

Operating the John Lewis department store and the Waitrose grocery chain, the company has taken measures to mitigate pandemic risks, including a campaign to recruit drivers, offer competitive salaries and benefits, and attract 7,000 temporary seasonal workers. It’s also “booking additional freight to make sure John Lewis Christmas products arrive on time,” White said.

White said the end of the year “is hard to call,” given the uncertainty surrounding the pandemic’s trajectory.

For holiday, the company is planning 10 new Christmas emporiums to offer one-stop Christmas shops with in-store events and workshops in John Lewis, and 100-plus new Christmas lines in Waitrose. It also plans to expand areas dedicated to John Lewis within Waitrose stores to about 40 shops by early 2022. And John Lewis just broadened its private label Anyday line to include’s men’s, women’s and children’s fashion.

As the retailer doesn’t expect e-commerce will subside to pre-Covid levels, it has been investing in “both our digital proposition and capacity growth to support customers as they evolve their shopping behavior.”

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John Lewis revenues rose 5 percent to 5.15 billion pounds ($7.10 billion) from 4.92 billion pounds ($6.78 billion), which included a 6 percent increase in retail sales to 5.87 billion euros ($8.10 billion) from 5.57 billion euros ($7.68 billion).

Sales at John Lewis stores were up 12 percent to 2.082 billion pounds ($2.87 billion) for the first-half period from 1.86 billion pounds ($2.56 billion). Online sales helped to offset lost store sales from John Lewis shops shuttered for 10 weeks during the first half, as well as those from permanent closures.

Sales during the period trended towards home and fashion, helping “margins recover significantly this half,” the company said, noting outerwear, dresses, premium jewelry and Mulberry handbags as top sellers.

The company reported profits of 69 million euros ($95.1 million) for the period, before bonuses, tax and exceptional items.

While U.K retail is showing signs of recovery, the retailer doesn’t expect trends towards online shopping to revert. This means the sector will face margin pressure, declining footfall, and increased demand for online shopping plus operational cost inflation outpacing sales growth for the foreseeable future.

On an after-tax basis, the company narrowed its loss to 29 million pounds ($40 million) from a loss of 635 million pounds ($875.5 million) in the same year-ago period.

“Our focus for the second half will be execution of the Partnership Plan—delighting our customers with unrivalled products and service (online and in store) and giving them the best possible Christmas,” White said.

JD Sports

Meanwhile, JD Sports guided full-year profits to nearly 2020’s haul after reporting record first-half profits.

The company cited pent-up demand for in-store shopping in British territories coupled with strength in the U.S., where it owns  Shoe Palace and DLTR, as factors behind the six-month record profits.

“It is clear that the United States is becoming an increasingly important territory for the Group with progression and evolution in this country having a major impact both on the Group’s overall performance and its standing with the international brands,” said Peter Cowgill, JD Sports’ executive chairman. The company now has 66 JD stores, opening seven new doors and converting 10 Finish Line locations to JD in the first half. With converted locations driving higher sales and margins, the company now plans to rebrand 25 more Finish Line stores to JD in the second half.

While operational challenges remain—such as Covid-19 spikes and the loss of tariff-free, frictionless trade with the European Union—Cowgill said the company remains committed to expanding its physical retail presence in Europe with a goal of “opening one store per week on average.”

JD Sports is said to be one of several suitors considering a deal for Missguided. Asda, which sells the fashion e-tailer’s products in 100 stores as of August, is also believed to be in talks with founder Nitin Passi, Draper reported, noting this could be the first step to a “bigger stake sale of a stock market flotation.”

JD Sports expects annual profits for the year ending Jan. 29, 2022, of at least 750 million pounds ($1.04 billion), or up 78 percent from year-ago results. The company posted annual profits for the year ended Jan. 30, 2021, of 421.3 million pounds ($585.8 million).

Cowgill noted that international brands “regularly call JD out as a premier global strategic partner,” he said. “We remain absolutely confident that our inherent strengths in retail dynamics and operations provide us with a robust platform to make further progress.”

JD Sports remains cautious about the potential for operating restrictions amid the critical holiday season, and will provide another update in January.

The company’s $123.5 million merger in May 2020 for an 8.3 percent stake in Footasylum still hangs in the balance amid antitrust concerns. U.K. antitrust watchdog Competition and Markets Authority (CMA) earlier this month issued a provisional ruling that blocked the deal. Cowgill last week reiterated the company’s commitment to the transaction and said JD Sports will continue to plead its case to the CMA before it releases its final report expected in October.

JD Sports leased a new e-commerce fulfillment facility in Derby as a previous warehouse in operation since 2012 is no longer meeting demand. A third-party facility in Southern Belgium has helped the company reduce its exposure to post-Brexit duties for moving goods in Mainland Europe. The company is finalizing a lease for a facility in Heerlen, South East Netherlands, which will be “complemented by smaller regional hubs near major urban areas to further enhance the service and delivery options to consumers,” the executive chairman said.

Revenue for the half ended July 31 rose 53 percent to $3.89 billion pounds ($5.04 billion) from $2.54 billion pounds ($3.54 billion).

The company the half saw “significant contributions” from its U.S. operations, where aggregate profit before tax and exceptional items rose to 245.0 million pounds ($340.7 million) versus 73.4 million pounds ($102.1 million) in 2020, helped by 72.9 million pounds ($101.4 million) from Shoe Palace and DTLR.

In the U.K. and Ireland, profit before tax and exceptional items rose to 170.8 million versus 52.0 million in 2020. Sales were primarily from digital channels during the first quarter when stores were temporarily closed.

Profits before tax and exceptional items for the first half rose to 439.5 million pounds ($611.1 million) from 61.9 million pounds ($86.1 million) in the year-ago period and better than 2019’s 158.6 million pounds ($220.5 million).

“At this time, we are generally encouraged by our performance in the first few weeks of the second half although retail footfall remains comparatively weak in many countries,” Cowgill said. “Assuming a prudent but realistic set of assumptions for the peak trading period ahead which take into account the absence of stimulus in the United States for the second half of the year, in addition to current industry-wide supply chain challenges, we presently anticipate delivering a headline profit before tax for the full year of at least 750 million pounds ($1.04 billion).