Uncertainty over Black Friday trading, investment in online ordering, and a "challenging" first half could mean underlying full-year profit before tax is below £115m, Home Retail Group said.
In the half year to 29 August, group sales fell 2% to £2.6bn.
But underlying profit before tax increased by 10% to £34.1m.
Home Retail Group chief executive John Walden said: "While group benchmark profit before tax increased slightly during the first half, performance overall was mixed."
And he added: "At this stage of the financial year we expect the group's full-year benchmark profit before tax to be slightly below the bottom end of the current range of market expectations of £115m to £140m."
Home Retail Group shares dived almost 14% in early trading in reaction to the warning.
Mr Walden reiterated that trading at Argos over the key Christmas period was likely to be "less predictable than usual" due to the impact of Black Friday shopping deals.
Originating in the US, Black Friday is becoming a major day for UK retailers. Last year, police were called in a number of UK cities amid frenzied buying from shoppers.
Analysts said Black Friday offers caused a shift in spending patterns in the final quarter of last year, which may have had a negative impact on Christmas shopping.
Mr Walden said Home Retail Group had increased investment in "Fast Track", Argos' online ordering, delivery, and click-and-collect service.
The service, which was announced last week, offers a same-day delivery service across the UK, seven days a week.
Home Retail Group is in the process of trying to transform Argos from a catalogue-based retailer into a more digital business.
However, Mr Walden said that Argos had a "challenging first half", with like-for-like sales down 3.4%. The chain suffered from weak sales of TVs and tablet computers.
But Homebase like-for-like sales rose 5.6%, with Hygena kitchens, Ideal Standards bathrooms and Habitat furniture sales growing.

It is unclear why the helicopter carrying Lionel Zinsou crash-landed in a stadium.
"My father is fine. There were no victims in the helicopter accident in Djougou," Marie-Cecile Zinsou tweeted.
Earlier this month, Mr Zinsou confirmed he would run as a candidate in Benin's 2016 presidential elections.
The helicopter crashed while landing at a stadium in the city of Djougou, a spokesman for Benin's interior ministry Leonce Houngbadji told the AFP news agency.
He said no-one in the helicopter was hurt.
Mr Zinsou, a former private-equity executive, was appointed prime minister of Benin in June.
He has said he will run for president in February's election as a candidate of the ruling Cowry Forces for an Emerging Benin (FCBE) party.
Reuters reported in early December that Mr Zinsou's announcement put an end to speculation Benin's president Thomas Boni Yayi was seeking a third term.
The owner of Argos and Homebase, Home Retail Group, has warned that its full-year underlying profits are set to fall below market expectations.
[NEXT_CONCEPT]
Benin's Prime Minister walked away unscathed after the helicopter in which he was travelling crashed in the country's northwest, his daughter said.