Pension costs hit John Lewis

The John Lewis store in Oxford Street, London.

John Lewis Partnership has posted a 26 per cent 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 1.3 per cent - 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 three per cent 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.”

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.”