UPDATE 1-Britain's John Lewis expects profit squeeze from competition

By Sarah Young

LONDON, March 8 (Reuters) - Retailer John Lewisexpects further pressure on profits in 2018 after a 22percent drop last year as a result of persistent competition onthe British high street.

Margins at its upmarket supermarket chain Waitrose weresqueezed in 2017 as John Lewis tried to keep prices competitivewhile costs rose due to a fall in the value of sterling.

British retailers are battling weak consumer sentiment andcurrency swings due to Britain's vote to leave the EuropeanUnion, which have prompted customers to rein in spending.

This was highlighted last month when two high-profile UKretailers, Toys R Us UK and electronics chain Maplin went intoadministration, threatening 5,000 jobs.

John Lewis, which has 49 eponymous department stores and 353Waitrose shops, said it expected more of the same.

"We expect trading to be volatile in 2018/19, withcontinuing economic uncertainty and no let up in competitiveintensity. We therefore anticipate further pressure on profits,"the group said in a statement on Thursday.

However, its competitive position would be stronger thisyear, thanks to changes and investments it made last year.

John Lewis said its profit before partnership bonus, tax andexceptional items plunged 22 percent to 289.2 million pounds($401 million) on gross sales which were 2 percent higher at11.6 billion pounds for the year ended Jan. 27.

The employee-owned retailer said its staff, known aspartners, would get a bonus of 5 percent, down from 6 percent.

The profitability of Waitrose dropped as the company decidedto improve its competitiveness by not passing on all costinflation, instead lowering prices on hundreds of products.

Waitrose is facing intense price competition from largersupermarket groups Tesco, Sainsbury's, ASDAand Morrisons, as well as fast-growing Germandiscounters Aldi and Lidl.

John Lewis said its department stores, however, fared betterwith operating profit before exceptional items up 4.5 percent,helped by stronger fashion and electrical sales.($1 = 0.7206 pounds)(Reporting by Sarah YoungEditing by Alistair Smout and Alexander Smith)