Co-op Group profits fall by a third
The group, which last year admitted it was battling the toughest conditions for 40 years, said its 3,000-strong food store division was also hurt by the wet weather as people drove to supermarkets rather than walking to local shops.
%VIRTUAL-SkimlinksPromo%Underlying sales in the division fell 1.2% in the 26 weeks to June 30, while operating profits dropped 16% to £119 million.
Its banking division, which has agreed to buy 632 branches from Lloyds, also felt the pain, with operating profits down 67.9% to £36.9 million as it bore the brunt of the UK's double-dip recession.
With its two biggest divisions suffering, overall group profits fell 34% to £174 million.
Chief executive Peter Marks, who recently announced his retirement, said: "A year ago, I warned that we were operating in the worst conditions that I have seen in more than 40 years in business. The results we are announcing today show the full impact of that, with the profitability of our two biggest businesses affected."
However, the group said it was confident that sales and profit would improve in the second half as it reaps the rewards of its work to improve its offer.
Its food business is the UK's fifth biggest grocer but has been struggling as supermarkets such Tesco and Sainsbury's have ramped up openings of convenience stores in recent years, while consumers have been shopping around for special offers.
But the Co-op said it is rolling out a new system which has improved stock availability in stores to 97.5%, while it is also opening shops for longer. Underlying sales in its core convenience chain were up 1.4%, with "very encouraging" sales in new trial stores, where like-for-like sales were up more than 12%.
Its banking business, which owns the Smile internet bank, was hit by increased bad debts from lending to corporate customers, provisions for payment protection insurance and low interest rates. But it said the performance was "satisfactory" given the state of the economy and warned the outlook for the industry was unlikely to improve in the medium term.