The John Lewis Partnership has suffered an almost 100% plunge in profits, with the group attributing the decline to its John Lewis department store business and a highly "promotional" marketplace. However, the company stressed that it will not retreat on marketing spend.
Reporting its half-year results to 28 July, the John Lewis Partnership said profit before tax and exceptional items fell 99% year on year to £1.2m, although revenue was up 1.5% to £4.9bn and gross sales were up 1.6%.
Sir Charlie Mayfield, chairman of the group, said the "significant decline in profits since last year" was mainly driven by the John Lewis department store, because margins have been hit in the "most promotional market we've seen in 10 years".
Asked by Campaign about reports that Elton John is to star in John Lewis's forthcoming Christmas TV ad, Mayfield refused to comment, explaining that it was important to build "suspense and anticipation" ahead of the campaign.
"What I will say is that we are not going to spend a penny more on this ad than we spent last year," he said, referring to reports that the singer is being paid £5m for his appearance. "Some reports of this are well wide of the mark.
"It's a really important point to make. Our investment in TV advertising gives us some of highest returns of all our marketing investments. It's about building brand salience across John Lewis and Waitrose.
"In these difficult times, many businesses tend to hunker down and cut, cut, cut."
While Mayfield said the group was very disciplined about costs, he added that it was crucial to "hold tight at difficult times" and back marketing. "You never win by retreat," he added.
In a statement, Mayfield said: "Profits before exceptionals are always lower and more volatile in the first half than the second half.
"It is especially so this half year, driven mainly by John Lewis & Partners, where gross margin has been squeezed in what has been the most promotional market we’ve seen in almost a decade. The pressure on gross margin has predominantly been from our commitment to maintain price competitiveness."
This summer, the John Lewis Partnership announced that it is changing the name of its two brands to John Lewis & Partners and Waitrose & Partners. The rebranding is supported by a new campaign, "Bohemian Rhapsody", by Adam & Eve/DDB.