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High street retailer Woolworths has warned that it is entering the second-half with "a degree of caution" after sales within its stores slumped during the first part of the year.

In a statement delivered at the company's annual general meeting this morning, the struggling retailer revealed that like-for-like sales fell by 0.6 per cent in the 17 weeks to June 2nd.

But outgoing chairman Gerald Corbett said the drop reflected higher sales levels which were achieved for the same period last year, when Woolworths cut prices in order to clear stock "aggressively".

He added that the retailer still expects to achieve an improvement to its full year gross margin of at least 100 basis points.

Early warm weather has already driven sales of Woolworths' Ladybird clothing range and outdoor products, while the company has been left with "minimal" residual Easter stocks following the careful promotion of such goods.

Yet as the retailer's chain of high street stores work to boost their performance, sales at the company's wholesale music and DVD distribution business are climbing.

Entertainment UK's (EUK) third party sales have risen by 28.4 per cent, contributing to an 11.4 per cent increase in overall group sales in the 17 weeks till June 2nd.

Nonetheless Woolworths, which said it expected to incur full-year costs of about £1.8 million as a result of the Competition Commission's ongoing investigation into EUK's planned takeover of book retailer Bertram, said it remained cautious about the outlook for the retail market.

"Whilst the group has had a solid start to the year, it is difficult to predict the retail environment going forward," said Mr Corbett.

"We thus approach the second half with a degree of caution," he added, stressing that Woolworths would continue to focus on controlling costs and improving margins in planning for a "challenging retail environment".