Profits at DIY/garden centre Homebase rose to £47.6m from £41.2m.
Home Retail Group, parent company of Homebase and Argos, saw overall annual profits drop 13 per cent. Underlying pre-tax profits fell to £254.1 million in the year on sales of £5.852bn.
The group will develop its online offering, open new stores and refurbish Argos.
Tesco results this week showed a 0.7 per cent drop in fourth quarter sales.
Home Retail has blamed the January VAT hike and government austerity measures.
Argos saw like-for-like sales drop 5.6 per cent in the last financial year, while Homebase saw same-store sales decline 0.3 per cent.
The group expect sales at Argos and for Homebase sales to remain "broadly flat".
HRG chairman Oliver Stocken said:
"Economic uncertainty and a low level of consumer confidence continue to adversely impact customer spending patterns. Despite these challenges the Group continues to build on its strategic advantages to ensure that it will be well positioned for the economic recovery over the longer term.
HRG chief executive Terry Duddy added:
"Our focus on operational excellence and further investment in our multi-channel leadership has delivered a solid performance and enabled us to gain or hold market share in our businesses.
"Although we remain cautious about the consumer outlook over the short term we will continue to invest and innovate in our customer proposition and use our competitive advantage to provide customers with the best value and widest choice in home and general merchandise."