Profits at the retail partnership, which also owns Waitrose supermarkets, were held back by greater investment and by matching prices of competitors.
Profit before tax and bonuses was Â£353.8m for the year to 28 January, down 3.8% from the previous year.
The bonus pool for the firm's workers was Â£165.2m or 14% of salary, down from 18% last year.
The partnership is owned by its 77,217 staff, who receive a share of any profits at the end of the company's financial year.
Despite what the firm called "difficult economic conditions", total sales at its John Lewis department stores grew 3% while those at its Waitrose supermarkets rose 8.6%.
Like-for-like sales, excluding VAT and the effect of new store openings, rose by 3% at Waitrose, but fell at its department stores by 0.6%.
The partnership said it had created 4,400 net new jobs in the year, with a further 1,900 expected this year.
"Profound changes are taking place in the retail sector and importantly this was a year when we upped the pace of innovation and investment," said chairman Charlie Mayfield.
"That came at the price of some short-term profit, but leaves us in a good place at the start of this year."
The trust-owned partnership said it opened 29 new Waitrose stores last year, as well as a new John Lewis department store in Stratford, East London.
The firm has been rolling out new store formats, including Waitrose convenience stores at petrol stations, and John Lewis "at home" stores, which specialise in homewear.
Waitrose continued to expand its online operation with a new warehouse in Acton, West London, while online sales at John Lewis increased by 26.3%.
However, the company was forced to spend Â£23.8m on its "Never Knowingly Undersold" promise due to price competition on the High Street.
John Lewis has reported a fall in annual profits and cut its staff bonus for the first time in three years.