The group, whose attempt to merge with rival Sainsbury's was blocked by Britain's competition regulator in April, said on Tuesday comparable sales, excluding petrol, slipped 1.3% in its fiscal fourth quarter to Dec. 31 - a deterioration from the previous quarter's 0.5% decline.
"Customers' mindsets during the quarter were cautious," said Chief Executive Roger Burnley.
"Whilst customers were enthusiastic for Christmas, they were more mindful in their spending, with many choosing to pare back gift lists and focus presents on kids rather than adults and extended family."
He noted that whilst Asda's data showed UK consumers' disposable income remained stable at around 217 pounds a week during the fourth quarter, "previously seen trends of growth are starting to slow and consumers remain highly budget conscious."
Retail sector data published last week showed Britons also kept a tight grip on their spending in January, indicating they have not felt a jump in confidence since December's election broke the Brexit logjam.
Asda said its gross profit rate, or margin, decreased, reflecting its own price cuts, discounting in the apparel market and a shift in mix towards lower margin categories. As a result its operating income also fell.
"Whilst overall performance in the quarter was impacted by challenging market conditions ? particularly in clothing ? the supermarket?s core food business proved more stable," Asda said.
Last month the other three of Britain's traditional big four retailers - industry leader Tesco, Sainsbury's and Morrisons - all reported subdued Christmas trading, highlighting a tough consumer environment.
Supermarket industry data published earlier this month showed all of the big four continuing to lose market share to German-owned discounters Aldi and Lidl, who, unlike the big four, are opening lots of new stores.
To stem the loss of market share the big four have been trying to narrow the price gap with the discounters and are also differentiating their offers.
Asda's strategy also focuses on driving quality and innovation in own-brand products, along with better store environments and improvements in its e-commerce operations and use of technology. Its home shopping business delivered sales growth of 10.3% in the quarter.
With the Sainsbury's deal thwarted, Walmart, which purchased Asda for 6.7 billion pounds in 1999, is considering a separate stock market listing for the firm. Burnley told Reuters in July it could happen in two years.
Then in October Asda agreed a 3.8 billion pound 'buy in' with Rothesay Life to secure the benefits for 12,300 members of one of its pension schemes. The deal simplifies its balance sheet ahead of a possible standalone listing.
Separately on Tuesday, Walmart missed Wall Street expectations for quarterly sales and profit.
By James Davey