NEIL MAIDMENT

John Lewis Partnership, which runs department stores and upmarket British grocery chain Waitrose, said higher pension charges and a tough trading environment could lead to a fall in full-year profit of as much as 21 percent.

The group said on Thursday higher pension charges had led to a 26 percent fall in first half pretax profit before exceptional items to 96.7 million pounds ($148.64 million).

For the full-year it said pension charges would be 60 million pounds higher than last year, meaning pretax profit before bonus and exceptional items would now be between 270 and 320 million pounds, versus 341.6 million a year ago.

Despite a supermarket price war, tight cost controls and sales growth at Waitrose helped first half adjusted operating profit rise 0.6 percent. Sales also grew at John Lewis but operating profit fell 16.3 percent due to higher costs.

Waitrose reported on Thursday that trade was slowly improving as new loyalty offers, cafes and online click-and-collect demand helps attract shoppers in an industry besieged by a price war.

Britain's big four grocers Tesco, Asda, Sainsbury's and Morrisons are all being squeezed at one end by Waitrose and upmarket rival Marks & Spencer and at the other end by discounters Aldi and Lidl.

As a result the major players are improving service and cutting prices to stay competitive, much to the detriment of profits, but Waitrose said on Thursday cost controls and market share gains had helped keep underlying operating profits broadly flat at 135.5 million pounds in the six months to Aug. 1.

"We are on a slowly improving trajectory, both in terms of average item price and in terms of customer spend and confidence," Waitrose Managing Director Mark Price said, pointing to an average of 280,000 more customer transactions a week than a year ago.

"We are not going to see a big spike all of a sudden but I would say it is gradually improving," Price said, in contrast to gloomier outlooks from its bigger rivals.

Britain's sixth biggest grocer, Waitrose has grown its market share to 5.1 percent while others have lost ground, retaining its wealthier middle class clientele and pulling in others with offers and price matches on products sold elsewhere.

Price cuts pushed underlying sales down 1.3 percent in the half, though the trend was improving week by week the firm said.

That compared with a 2.7 percent fall at Britain's fourth biggest supermarket Morrisons, which reported a 35 percent drop in profit on Thursday.

"Waitrose should continue to out-perform the market with its new stores, strengthened online presence and ongoing innovative approach seemingly pleasing the majority of its customers," Shore Capital analyst Clive Black said.

In July Waitrose launched a scheme whereby loyalty customers can choose 10 products from a list which they can save 20 percent on, with 700,000 shoppers now signed up.