John Lewis has posted a sharp drop in operating profit in its first half as it matched the scale of discounting on the high street with its ‘Never Knowingly Undersold’ commitment and invested in the business.

For the half year to July 30, operating profit was down 54.5% to £15.8m. Gross sales were up 2.5% to £1.42bn, and like-for-like sales were up 1%.

Sister grocer Waitrose also saw a slight drop in operating profit as it invested in the business. Operating profit was down 13.8% to £110.2m, while gross sales were up 8.7% to £2.63bn and food only like-for-like sales were up by 4%. In Q1, like-for-like sales were up 4.7% and in Q2 up by 3.4%.

John Lewis said profits were impacted by its ‘Never Knowingly Undersold’ commitment and the highly competitive trading environment. However, it also said it continues with its strategy to grow the business and invest for the long term.

John Lewis said it won share in each of its three markets. It said its home market has been affected by the housing market but sales were still up 0.6%. Fashion was up 4.2% and electricals and home technology were up 3.8%.

It said Johnlewis.com outperformed the market with 27.2% growth. It said this has been achieved via increasing the number of products and brands, investing in click and collect. Next month the number of collection outlets will more than double to 116, including all 84 branches. Johnlewis.com accounts for 19% of total sales and it expects to achieve online sales of £1bn by 2014.

It has introduced new concepts such as its Beauty Retreat format at Cheadle, and new concepts for home and technology at Stratford, which opened yesterday.

Waitrose reported a 26.8% uplift in online sales. It has also started delivering in London and will open a dotcom only store in Acton this autumn.

Waitrose now has 21 convenience stores and will open a further 12 by the end of this year. It wants an estate of 300 by the end of the decade.

Its revamped Canary Wharf store reopened last week, its first Food, Fashion & Home shop. It also opened at Westfield Straford City yesterday.

Essential Waitrose, its entry level own label range, is now a £1bn brand. It said promotional are up to 27% in stores, up 3.3 percentage points on the same time last year.

Overall, the John Lewis Partnership reported operating profit down 23.2% to £111.5m, and gross sales up 6.4% to £4.05bn.

John Lewis Partnership chairman Charlie Mayfield said: “Sales grew strongly although, as expected, profits were lower than in the same period in 2010 as we accelerated investment in our future growth plans, even though conditions remained extremely challenging.”

He said capital expenditure increased by £99m to £254m with investment.

“Trading conditions are set to remain challenging through the rest of this year and into 2012. We are not simply waiting for the recovery, but instead we have increased the pace of investment and innovation across the partnership putting us in the best possible position to seize the opportunity created by a rapidly changing retail environment.”

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