John Lewis Partnership has revealed a steep fall in annual profits after a “tough year”.

But chairman Charlie Mayfield said the business had “met the challenges of deteriorating conditions” to deliver a “sound performance”. Partners will share a bonus of £125.5m, equivalent to almost seven weeks’ pay.

Department store openings, a sales decline at established stores and investment in lower prices at grocer Waitrose all eroded profitability.

The Partnership posted an 18 per cent drop in operating profit to£323.5m on sales up 3 per cent to £6.97bn in the year to January 31.

John Lewis department stores suffered a 26.8 per cent fall in operating profit to£53.5m on flat sales of £2.81bn. Like-for-likes fell 3.4 per cent.

The retailer reported: “Our profits fell as a direct consequence of the decline in sales in established shops and the cost of new openings. Our margin held up well, despite greater price competition.

“Our commitment to value and price through Never Knowingly Undersold proved particularly successful and the reductions in price were rewarded with higher volumes and increased market share, especially in TVs.”

Waitrose posted a 3.4 per cent slide in operating profit to £211.6m on sales up by 5.2 per cent to just over £4bn. Like-for-likes rose 0.4 per cent.

The retailer reported: “We invested heavily in price, with over £30m in price reductions and 8,400 promotions – an increase of 25 per cent on the prior year. Our investment in price was greater, in proportion to our size, than our competitors.”

Mayfield said: “We expect trading conditions for 2009 to continue to be very tough, with ongoing pressures on consumer spend and low consumer confidence.

“We anticipate that price competition will be as intense as last year and are well prepared to meet these challenges.

“Our unique ownership structure means that we have highly motivated and experienced partners who are determined to serve our customers well, drive sales growth and rebuild profitability for the long term providing the confidence we have that the Partnership will remain resilient through the recession and emerge even stronger as markets improve.”