WH Smith has reported worse Christmas sales than those a year ago, which forced a profits warning and the departure of a director, but said that the decline reflected moves to support earnings.

The book and stationery retailer said that group like-for-like sales fell by 1 per cent in the six weeks to last Saturday. At the core high street stores, comparable takings slid by 2 per cent.

Last year, an announcement of flat Christmas sales prompted WH Smith to issue London's first profits warning of 2004 and force out its UK retail director. WH Smith shares plunged 20 per cent.

However, the company this morning said that falling sales reflected a strategy of ditching a reliance on promotions and steep discounts. Margins at the stores had risen by two percentage points, with cost savings proposed in a revival plan also running ahead of target.

"Consequently, high street profitability is substantially ahead of the prior year," WH Smith said.

The company, which last year reported a £135 million loss, the worst in its 212-year history, has proposed measures including better stock and financial controls to revive prosperity.

Kate Swann, the retailer's chief executive, said: "Progress against our plan to deliver value to shareholders is encouraging. Customer response to increased product choice, better availability and improved store standards has been positive."

Stationery and magazines proved strong sellers during the period, with sales from entertainment items, to which WH Smith has reduced its exposure, continuing to prove "difficult".

"Key DVD titles underperformed market expectations," the retailer said.

While book sales fell, the reduced reliance on promotions meant that margins soared.

The statement received a cautious welcome from analysts who, in the run-up to Christmas, had feared for WH Smith's prospects.

John Baillie, at SG Securities, said: "The sales decline was less than expected and the gross margin improvement was better than expected."

Dresdner Kleinwort said: "Despite a disappointing top-line performance, Kate Swann has delivered a significant gross margin improvement this Christmas."

WH Smith shares stood 19p higher at 359.25p in afternoon trade after touching 363.5p earlier.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee