Ottakar's has issued a profits warning following disappointing Christmas trading and suggested 2005 is likely to see a slowing down of the book shop group's impressive growth rate of recent years.

Chairman Philip Dunne said Ottakar's 131 stores had been visited by slightly fewer customers than hoped - who had spent slightly less than hoped - in the run-up to Christmas. "This is not Armageddon," he said. "But it is a disappointment."

Analysts speculated that online retailers and heavy discounting at rival stores had hit earnings at Ottakar's, but Mr Dunne insisted there was no obvious reason beyond sluggish sales trends across the retail sector.

For the last five weeks of 2004, same store sales growth was 2.2%, down from 7.7% for the six weeks to January 10 2004. Ottakar's said sales for the year to January 31 2005 are likely to be £2.5m short of expectations. Pre-tax profit for the year is likely to be "not less than £7m", compared with £6.1m last year and forecasts for this year of £8.9m.

The company also hinted it was likely to incur a one-off charge of £600,000 primarily in relation to unforeseen staffing costs at its Hammicks stores acquired in 2003. This under-budgeting is thought to be one of the reasons behind the surprise resignation of finance director Edward Knighton in September.

At the time Ottakar's said he was stepping down "to pursue new opportunities within the public arena". But yesterday it emerged the bookseller had paid him about £100,000 in compensation.

Mr Dunne said: "We are in the process of going through the budget for next year with a fine tooth comb, looking to contain costs." He said he was very close to announcing a successor to Mr Knighton.

Asked about 2005, Mr Dunne said: "We are going into a relatively cautious period. We will not be looking at the same like-for-like figures next year as we saw this year."

Rhys Williams, an analyst at Seymour Pierce, said: "This performance is a disappointment, especially the unexpected costs, which in our opinion shows signs of weaknesses in the company's budgeting systems."

Yesterday's profits warning and revised growth expectations will not affect Ottakar's expansion plans, the company insisted. It plans to open 50,000sq ft of shopfloor space in 2005.