John Lewis Cuts Staff Bonus as Pension Gap Hits $1.7 BillionPaul Jarvis
John Lewis Partnership Plc said its pension deficit rose to about 1 billion pounds ($1.7 billion) in the last fiscal year, leading the owner of the U.K.’s largest department-store chain to cut rewards to its 91,000 workers.
The pension deficit climbed 22 percent from a year earlier, a third straight increase, while the bonus paid to staff was reduced to 15 percent of salary from 17 percent for the previous year, the London-based company said today in a statement. John Lewis also reported a drop in profit after paying 39.3 million pounds to compensate employees who were underpaid since 2006 because of an error in calculating their holiday pay.
The widening pension gap is posing a challenge for John Lewis, which has been employee-owned since 1929 and whose eponymous department stores and Waitrose supermarkets have been among the U.K. retail industry’s strongest performers in recent years. Total pension expenses in the year through Jan. 25 rose 22 percent to 203 million pounds.
“The pension is one of the most important benefits offered to partners, but also accounts for the greatest single investment made each year,” the company said.
As part of a 10-year plan to eliminate the deficit, the employee-owned retailer made an 85 million-pound contribution to the pension fund in January. That will be followed by annual payments of 44 million pounds, it said today.
The difficulties faced by John Lewis come as U.K. pension funds are in their strongest financial position in 2 1/2 years. Pension funds have enough assets to cover 98 percent of their future commitments, according to the Pension Protection Fund.
A decline in the discount rate used to measure future pension obligations and an increase in the number of members were the main reasons for the increase in John Lewis’s deficit, Finance Director Helen Weir said on a conference call.
The retailer said pretax profit fell 4.1 percent to 329.1 million pounds in the year after one-time costs of 47.3 million pounds that followed a review of its holiday pay policy.
The review found that John Lewis had been inconsistent in its interpretation of changes in the European Working Time Directive, Chairman Charlie Mayfield said on the call.
“We took immediate steps to rectify that,” he said. “The charge is so high because we decided to go back to 2006 and make right all the payments that we hadn’t made since then.”
Excluding one-time expenses, earnings rose 9.6 percent as sales increased 6.6 percent to 10.2 billion pounds.
Waitrose’s operating profit advanced 6.1 percent to 310.1 million pounds, while earnings at the John Lewis department-store chain increased 11 percent before restructuring costs to 240.5 million pounds.
The retailer said the new financial year has “started well.” Revenue at Waitrose stores open at least a year is up 3.7 percent, excluding gasoline, after five weeks, while John Lewis same-store sales are 5.3 percent ahead.
“There are more encouraging signs for the economy as a whole and, although this has not yet come through as a significant increase in consumer spending, I am cautiously optimistic that we will see improvements this year,” Mayfield said in the statement.