Profits at the John Lewis Partnership have more than halved after the retailer was hit by reorganisation costs and the impact of the weaker pound following the Brexit vote.
The partnership said profits in the six months to 29 July fell 53.3% to £26.6m.
John Lewis said the fall in the pound had pushed up its costs, hitting profit margins.
It added that inflationary pressures, driven by exchange rates and political uncertainty, had hit customer demand.
John Lewis Partnership chairman Sir Charlie Mayfield told the BBC: “We should be under no illusions, Brexit is having an effect on the economy, no question. It’s the same for everybody, and the main effects are sterling and confidence.
“Uncertainty is one of the consequences of this, and of course businesses never like uncertainty, because it makes it hard to plan for the future.”
John Lewis was also hit by a one-off £56.4m charge, mainly for restructuring and redundancy costs.
Profits at the department store business rose by 10%. However, Waitrose saw profits fall 18% as the supermarket chain was faced with higher costs, “very few” of which were passed on to shoppers, it said.
“Look, nobody should be surprised that this is a tough market for retailers. There’s any number of reasons for that,” Sir Charlie said.
“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.”
However, the retailer can afford to continue to absorb costs “for a while”, Sir Charlie said, because of the group’s healthy cash reserves.
He also said that money spent on reorganising the business, which ate into profits, was an important investment.
“We haven’t… hunkered down in a difficult market. Instead what we’ve done is we’ve pressed on with some really important changes that are going to make the business fit for the future,” he said.
“While it’s been a difficult first-half, our sales have still been up, our profits are down, but we’ve made some really important progress for the future,” Sir Charlie added.
Tom Berry, a retail analyst at GlobalData, expects profits to continue to fall this year due to squeezed profit margins and plans for large-scale investment.
“Waitrose must continue to invest in prices to remain affordable for a sufficient number of consumers,” he said.
But he said the reorganisation of the business should bear fruit, particularly the plan to remove managerial rather than face-to-face staff.
“The introduction of flexible team structures and responsibilities will allow the upmarket grocer to better attend to its affluent customer base that expects a high level of service.”