As a former first grade teacher I can tell you not to worry too much yet. If she can sound the words out, that's great; she's on her way. Try to work on her sight words. Maybe do a game with flashcards and a sticker chart. Every time she gets new words she can fill it up for a prize at the end. This will help her to read faster.
Try to find the lyrics to her favorite songs and print them out. See if she can guess the song by reading the first few words. She might get excited once she realizes that it's something familiar that she already likes. Does she pick out her own books at the library to read at night? Librarians are terrific resources for new and exciting kids' books. If you can keep it fun, she won't get so frustrated.
It's tempting to compare your daughter to her classmates, but try not to. Everyone learns at their own speed and excels in their own area.
Best of luck!