John Lewis's pre-tax profits fell by 53.1% to £26.9m in the six months to 29 July.
Gross sales were up 2.3% at £5,395.1m with like-for-like increases of 0.7% at Waitrose and 0.7% at John Lewis.
Pre-tax profits before exceptional items were 4.8% lower at £83.3m.
John Lewis Partnership chairman Sir Charlie Mayfield said: "Gross sales were up 2.3% in both Waitrose and John Lewis; a solid performance in a difficult market.
"Our Group profit before tax and exceptional items was down 4.8%, but this was flattered by property profits and after excluding these it was down 17.4%.
"As we anticipated in our full year results statement in March, the first half of this year has seen inflationary pressures driven by exchange rates and political uncertainty.
"These have dampened customer demand, especially in categories connected to the housing market.
"Against that backdrop, our market share gains in Fashion stood out.
"The exchange rate driven increase in cost prices has also put pressure on margin.
"We have chosen to hold back on increasing prices across many areas.
"Our results also reflect the acceleration of our strategy to ensure the Group's success in the future.
"This has included: changing the way we operate Waitrose branches, creating new flexible team structures with broader responsibilities; further changes in John Lewis to adapt the business for the future; and moving from divisional to Group functions across Finance, Personnel and IT.
"As a result, we incurred exceptional costs of £56.4m.
"Given the key role our Partners play, we are very focused on managing the risk of these changes carefully.
"Sales growth has continued in the first few weeks of the second half.
"We are well set for our all-important seasonal peak, but we expect the headwinds that have dampened consumer demand and put pressure on margins to continue into next year.
"In addition, we will incur higher pension accounting charges in the second half year, as a result of low market interest rates.
"These will all impact our full year profits."