Profit before tax fell 77% on the prior year to GBP103.9m in the 52 weeks to 27 January.
Sir Charlie Mayfield, Chairman of John Lewis Partnership, said: "As we anticipated, 2017 was a challenging year".
"Consumer demand was subdued and we made significant changes to operations across the partnership which affected many partners".
Gross sales for the full-year period were 2 percent higher at 11.6 billion pounds, the retailer said, adding that the outlook for 2018/19 remained hard. Operating profit before exceptional items was £254.2m up 4.5 per cent.
He added that the company had chosen to cut the proportion of profits paid as partnership bonus in order to absorb the impact of tough trading "while continuing to invest in the future and in strengthening our balance sheet".
"We did both and I am pleased to say that despite lower profits, strong cash flow has enabled us to reduce our total net debts".More news: Saudi Arabia expected to buy 48 Typhoon jets from UK
The payouts are still generous compared to other firms as the John Lewis group sees its staff as partners, rather than workers. "Our 2018/19 programmes include upgrading our stock management, ordering and replenishment systems as well as a new transport management system to plan and schedule deliveries more efficiently".
As a result, it is moving all online content onto a responsive platform that will give customers a more "seamless" shopping experience across devices. It said store openings in White City and Cheltenham would take forward its vision of the reinvented department store.
A 5% increase in womenswear sales helped drive a 3.2% sales increase in its fashion division. Electricals and technology sales lifted by 2.6%, with connected home and wearable technology sales particularly buoyant.
John Lewis saw 0.4% sales growth and a slight uptick in profits.
John Lewis didn't provide margin figures but said margins were squeezed by its decision to not pass on cost inflation to its customers via price increases, and also by its investments in its customer experience.
The supermarket posted a 32.1% decline in operating profit to £172m.