Department stores to take toll on John Lewis profit

LONDON (Reuters) - Britain's John Lewis Partnership warned that its 2018-19 profit would be substantially below the previous year's level, hurt by expected declines at its department stores, adding that it could close some shops.

John Lewis has in recent years appeared to be weathering a difficult environment for British retailers better than rivals Marks & Spencer, Debenhams and House of Fraser, but the warning on Wednesday showed the extent of its problems.

The group, owned by 85,000 workers in its John Lewis department stores and upmarket Waitrose supermarkets, said that while profit at Waitrose would grow, there would be declines at John Lewis and big investments in technology would also drag on group profits.

The warning comes after it reported a 22 percent drop in core profit to 289 million pounds for its last financial year in March. Its financial year runs until late January.

In a strategy update on Wednesday, the group emphasised that its future would not be about building scale, and said that it could close or cease operating some shops. It currently has 353 Waitrose shops and 50 John Lewis stores.

The exit or closure of shops would be at a rate similar to that over the last few years. It announced the disposal of four Waitrose convenience shops and one small Waitrose supermarket on Wednesday.

Many British retailers are shutting shops in the face of competition from online retailers such as Amazon, a squeeze on consumer budgets and a change in Briton's spending habits away from fashion and towards holidays and entertainment.

Department store group House of Fraser is closing 31 stores, while Marks & Spencer wants to shut 100 UK shops by 2022.

John Lewis said it would continue to invest at a rate of 400 million pounds to 500 million pounds per year as its strategy was to maintain investment whatever the economic environment.

"The measures that we have outlined today are an important next step in our strategy that will ensure we emerge stronger from this period of profound change," the Partnership's chairman Charlie Mayfield said in a statement.

John Lewis, founded 154 years ago, also said it would rebrand its department stores "John Lewis & Partners" and its supermarkets "Waitrose & Partners" from September to put greater emphasis on its unique employee-owned business model.

(Reporting by James Davey, writing by Sarah Young; Editing by Paul Sandle/Keith Weir)