John Lewis Warning of Profit Squeeze Hits U.K. Retail Stocks

(Bloomberg) -- U.K. retailer John Lewis Partnership Plc said the weak pound and higher costs will squeeze its profit this year in the latest sign of the deepening crisis on Britain’s shopping streets.

The department-store chain warned of further pressure on profits after earnings before exceptional items fell 22 percent in the latest fiscal year. The FTSE 350 General Retailers Index slid as much as 0.7 percent, with Tesco Plc, J Sainsbury Plc, Next Plc and Marks & Spencer Group Plc all lower.

The warning from the owner of grocer Waitrose adds to the distress among U.K. store owners contending with the rise of Inc. and other online retailers, as the Brexit-induced weakness of the pound and a rise in the minimum wage lift their costs. Toys “R” Us Inc.’s U.K. unit and electronics chain Maplin have begun insolvency procedures, while apparel chain New Look is shutting stores and cutting jobs.

John Lewis Warning of Profit Squeeze Hits U.K. Retail Stocks

“We expect trading to be volatile in 2018-19, with continuing economic uncertainty and no letup in competitive intensity,” John Lewis said in a statement. “We therefore anticipate further pressure on profits.”

Closely held John Lewis cut the bonus it pays employees to 5 percent of salary, down from 6 percent a year earlier.

Like other U.K. retailers, John Lewis has been implementing more flexible working arrangements in a bid to hold down staffing costs amid increases in the U.K.’s minimum wage. It’s also been revamping stores, adding sushi counters and other features at Waitrose stores.

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