Argos owner Home Retail Group expects full-year profit to come in £20m ahead of City forecasts at £285m after Christmas trading exceeded management expectations.

Although Argos’s like-for-like sales rise of 0.1% in the 18 weeks to January 2 was below City expectations it was better than anticipated internally and margin decline was better than the City had pencilled in.

There was strong growth in categories such as toys, computers and televisions. Poor sales of video games dragged down overall performance.

During the period Chad Valley, which Home Retail bought from the administrators of bust variety store group Woolworths, became Argos’s number one toy brand.

Home Retail chief executive Terry Duddy said he was pleased with the performance of Chad Valley, which was introduced to the Argos catalogue for the first time and achieved dominance in a toy market which was very strong overall.

The internet accounted for 35% of Argos’s sales in the period, up from 30% a year earlier.

Sister chain Homebase notched up better than expected 4% like-for-like growth, spearheaded by big-ticket categories such as kitchens. Duddy said it was impossible to tell the extent to which the reintroduction of a higher rate of VAT might have had an effect.

Despite raising profit guidance, Duddy was cautious about prospects for the retail sector as a whole in the year to come. “Positive sales growth will be hard to come by,” he said.