John Lewis Partnership reported a 19.6 per cent slide in half-year profits today, despite a resurgent performance from its Waitrose supermarket chain.
Waitrose saw underlying earnings jump 18.7 per cent to £19.1 million in the six months to August 1, thanks to the launch of its value "essentials" range and free online delivery offer.
But a 49 per cent plunge in operating profits across the department stores business dragged overall results lower, sending group underlying pre-tax profits down to £86.3 million from £107.3 million a year earlier.
John Lewis stores have been hit by the consumer spending slump, with interim like-for-like sales down 4.7 per cent.
But the firm said trading conditions had not been as bad as first feared, while earnings within the chain were better than it expected, despite nearly halving to £20.9 million.
The second half had also started well, according to John Lewis, with total department store sales declines easing to 1.3 per cent in the first six weeks.
Upmarket retailer Waitrose has been the star performer of the first half of the year, posting a 1.8 per cent rise in same store sales, excluding fuel - a marked improvement on the 0.6 per cent decline at the full-year stage.
Food sales were up 2 per cent on a comparable basis as Waitrose invested £14 million in price promotions, led by its new cheaper essentials range.
Waitrose has been gaining ground thanks to recent efforts to broaden its appeal to better compete in the recession.
The latest TNS Worldpanel figures showed Waitrose had grown its market share to 3.9 per cent in the 12 weeks to August, compared to 3.7 per cent in the same period last year.
The group revealed recent trading at Waitrose had improved further, with total sales ahead by 11.3 per cent in the first six weeks, up from 7.4 per cent in the half-year.
Charlie Mayfield, chairman of John Lewis Partnership, said: "The economic environment has turned out to be better than we originally expected and although conditions remain challenging, we have seen an encouraging response to the steps we have taken to reposition the Partnership to the new retail environment."
He added trading conditions this year were likely to continue surprising on the upside, but struck a more cautious tone for next year.
"2010 may be difficult and we foresee a slow, drawn out economic recovery," he warned.
John Lewis operates 27 department stores and 215 Waitrose supermarket outlets.Reuse content