STORE chain and mill owner John Lewis, which employs hundreds at its East Lancashire sites, has issued a warning as its half-year profits slumped by 43 per cent.

The chain, which operates Herbert Parkinson in Darwen and JH Birtwistle of Haslingden, blamed falling prices, £20million one-off costs from a major store refurbishment programme and a change in its rules on paying out accrued holiday pay to staff, for the collapse in profits, to £38.5million, from £67.7million last year.

Chairman Stuart Hampson said: "Realistically we must expect our full-year profits to fall some way short of those of 1999."

The main costs were a major refurbishment of the group's flagship Peter Jones store in London, which disrupted trade, as well as the redevelopment of 11 former stores bought from the Somerfield supermarket chain. Finance director David Young said: "It is quite simply that, although sales have been better than our own estimates, what has happened is that costs have run ahead of sales."

Yet, even without these one-off costs, pre-tax profits were still down on last year.

Mr Young said the reason for this was deflationary pressures driving down prices, which were affecting retailers across the board, as well as the fact John Lewis had been selling a lot of low-margin goods such as large electrical items, computers and audio goods.

A decision by John Lewis' central council to change its rules regarding holiday accrual payments also impacted on profits, he added.

Traditionally staff agree not to take any holiday in their first year of employment and accrue the pay for that period, which they can then receive when they leave the company.

But the John Lewis council decided staff should be entitled to this windfall at any point before they leave.

This had cost the company £6million in the period, said Mr Young.