High Street bookseller and stationer WH Smith has announced a drop in sales in the crucial period over Christmas.
WH Smith is keeping its eye on the "bottom line"
It said like-for-like sales at its 542 UK stores fell 6% in the seven weeks to 21 January, after earlier predicting it would be a tough trading environment.
But profits still met expectations, as the firm managed to avoid discounts and so increase its profit margins.
WH Smith, battling competition from supermarkets and music retailers, said it was "cautious" about the future.
The group's 127 travel retail outlets achieved like-for-like sales growth of 3%.
Chief executive Kate Swann said: "The Christmas trading period was as challenging and competitive in our markets as anticipated.
"Our strategy to focus on the bottom line has resulted in better margin performance and improved profitability."
WH Smith said it was now sticking to its existing £77m to £82m pre-tax profit target for the full year ending 31 August 2006.
"They have under-achieved on sales but over-achieved on gross margin gains," said Credit Suisse First Boston analyst Tony Shiret.