A hero may retreat from combat anytime it is his turn. He may also retreat before combat during his Tactics Phase if such a phase occurs. Players cannot retreat if the hero is defending in a siege (unless he is in a Stronghold that has an Escape Tunnel) or fighting against an enemy hero wielding the Shackles of War. The hero will reappear in the Tavern ready for immediate re-recruiting and retain all artifacts but lose all armies.
Note: Even if your hero inflicted serious losses to the opponent, if you retreat from combat no experience will be gained from the battle.
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Retreating (or surrendering) is a good idea: