Underlying profits fell to £292.9m for the year to 27 February, down 11% from last year's figure of £327.7m.
But the company said that results for both Argos and Homebase had "exceeded initial expectations".
In the year to 27 February 2010 sales were up two per cent to £6.023bn.
Operating highlights included a successful spring 2009 at Homebase and growth in market shares in "virtually all" of Argos' and Homebase's major product categories including outdoor living.
Benchmark operating profit was down 4% to £290m, with a decline of £37m or 12% at Argos and an increase of £26m or 177% at Homebase. Homebase turnover increased from £1.513bn to £1.571bn
Oliver Stocken, chairman of Home Retail Group, said: "The UK home and general merchandise market has experienced reduced levels of customer demand and industry-wide pressures on the cost of goods over the last year. On all measures, the group has produced a good result against this backdrop."
HRG chief executive Terry Duddy added: "The results for both Argos and Homebase exceeded initial expectations as we traded through the year. We have achieved further market share gains, demonstrated our commitment to remaining highly price competitive and controlled costs extremely tightly to support both operating profit and cash generation.
"Our approach over the last year has also prepared us for the year ahead, which is likely to remain difficult for UK retail. By continuing to invest and constantly develop our multi-channel leadership and differentiated formats, we will retain our competitive advantage and therefore remain well placed for the future."