The chain - which also owns B&Q, Comet and Superdrug - reported bumper Christmas sales, but admitted margins were under pressure as competition continued and significant costs arose from new investments.

Chief executive Geoffrey Mulcahy confirmed many analysts' fears when he said: "Competition in the retail sector gets tougher year by year. Margins have been coming down for several years and that isn't going to change soon."

Kingfisher shares shed 7.7% to 621p soon after the announcement.

They were the worst performers in the FTSE 100 index on Tuesday morning, dragging down other retailers, such as mail-order group GUS and chemist giant Boots.

Housing market boost

Kingfisher unveiled a 30.8% jump in business in the Christmas season.

It received a big boost from the buoyant housing market, creating demand for home goods and improvement products.

Kingfisher said in the nine weeks to 1 January, like-for-like sales growth was 6% but an acceleration in investments will mean at least �21m will be cut from bottom-line profits in the full year.

The group opened new stores last year, and is due to open more "Big W" out-of-town centres. It also took over several businesses during the year.

Sir Geoffrey said: "We are investing heavily in e-commerce and other new channels throughout the group and expect our revenue cost in this area to exceed �21m in the current year."

At B&Q, like-for-like sales were up 11.9% over the nine-week period.

Demand for electrical goods at Christmas spurred trading at Comet where like-for-like sales were up 6.2%, helped by strong television sales.

But like-for-like sales at Superdrug were almost flat - up just 0.6% - blamed on tough trading and fierce price competition.

Selfridges surge

Meanwhile, upmarket department store Selfridges also revealed bumper Christmas sales figures.

Selfridges enjoyed a 12.9% surge in seasonal sales at its flagship Oxford Street store.

Shoppers at the group's Manchester store were even keener to spend, with sales ahead by 31.9%.

The figures covered the Christmas period and the first week of January sales.

The Oxford Street shop had a major overhaul last year which boosted selling space by 7%.

The sales news confirms figures from the British Retail Consortium, showing high street stores enjoyed a booming Christmas.

General sales were 5.6% up in December on a year ago.

The consumer's eye for a bargain was evident in sales figures from discount retailer Matalan which saw pre-Christmas sales surge 42.9%.

Cardiff-based Peacocks also saw sales for the five weeks to 1 January jump 28%, with like-for-like sales ahead 9%.