DEPARTMENT store group John Lewis has reported a £10m fall in half-year profits after figures were hit by higher pension costs and increased spending on its stores.

The group, which also owns the Waitrose supermarket chain, said profits fell to £34m for the half-year to July 27, although sales posted a five per cent rise to £2.18bn.

Profits were hit by costs of its generous non-contributory pension scheme, increasing 14 per cent to £33m, while investment in new branches and modernising stores meant its interest bill grew ten per cent to £17m.

The group's insurance premiums also rose steeply, following increased rates in the wake of the September 11 attacks.

It was also hurt by £4m of one-off costs relating to moving its computer centre to Bracknell.

John Lewis said sales at its 26 department stores, which include the former Bainbridge store in Newcastle's Eldon Square, as well as branches in Aberdeen, Southampton, Bristol and Norwich, had topped the £1bn mark for the first time during the half-year.

Sales rose six per cent to £1.01bn at the stores.

Sales at the 136-strong Waitrose chain rose 3.5 per cent to £1.17bn, which it said was achieved in the face of "aggressive investment by larger competitors" and poor summer weather affecting sales of fresh food.

John Lewis said both divisions had made a "promising start" to the second half of the year, with sales rising five per cent.

However, it said the group continued to keep its cost base under review.

John Lewis' 58,000 staff share in its profits as well as sharing control of the company through elected representatives. Bonuses equivalent to about ten per cent of annual salary are paid to staff at the end of the financial year.