John Lewis Partnership profits have fallen by more than 50% after the retail group was hit by costs to reorganise the business.
At the John Lewis department store, operating profits rose by 10%.
But at Waitrose operating profits fell 18% as its margin was eaten into by higher costs.
"Look, nobody should be surprised that this is a tough market for retailers. There's any number of reasons for that," John Lewis Partnership chairman Sir Charlie Mayfield told the BBC.
"The reason our profits are down is predominantly because of margin, and cost prices are rising. It's a very competitive market, retail prices are not rising as fast."
Inflation is pushing costs up for John Lewis Partnership, but the retailer is choosing to absorb those higher costs, Sir Charlie said.
John Lewis can afford to continue to do this "for a while", he said, because of the group's healthy cash reserves.