Home Retail Group said that like-for-like sales at Argos fell 1.1% in the eight weeks to 27 February, compared to a fall of 2.2% in the previous quarter.
The electrical and homeware retailer is being targeted by both Sainsbury's and South African retailer Steinhoff.
Both companies have until 18 March to make firm bids for Argos.
Last month, a £1.3bn bid from Sainsbury's for Home Retail was trumped by Steinhoff's £1.4bn offer.
Home Retail recently sold its DIY chain Homebase to Australia's Wesfarmers last month for £340m, leaving Argos as its only remaining business.
Total sales at Argos rose 1.9% to £515m in the eight-week period as demand for furniture and sports goods offset lower sales of electrical goods, such as video games and tablet computers.
The company said Argos opened 90 new stores over the year, bringing the total to 845. The new openings held back the like-for-like sales total over the period, it added.
Chief executive John Walden, who said it had been "another rather eventful period" for the company, was pleased with the improvement in Argos' sales.
Shares in Home Retail closed down almost 0.5% at 179.1p, but have risen more than 80% this year following Sainsbury's interest in Argos.
The supermarket has argued that combining both chains would create a "world-leading" retailer bigger than rivals John Lewis and Amazon UK.
Retail analyst Nick Bubb said: "Home Retail claim that underlying like-for-like sales were broadly flat, once the cannibalisation from the infamous concession inserts in Homebase and Sainsbury are taken out. Gross margins were up, however, by 75 basis points and Home Retail's year-end net cash was strong."
Sainsbury's had offered about 167p a share for Home Retail, but will be forced to at least match the 175p-a-share all-cash offer from Steinhoff, which owns UK furniture retailer Harveys.
However, the supermarket may be reluctant to increase its offer to the level needed to win control of Argos.
Analysts have also questioned the wisdom of Sainsbury's acquiring the struggling retailer.
Argos, the retail chain at the centre of a bidding war, has shown a fall in sales over the Christmas period.