During a game today I had two situations where my unit with toughness was forced to retreat into blocked areas, which would force a hit (single space retreat only, using directional retreat rules). We ruled that toughness would cover this damage (no additional damage had been rolled). Is this correct and would Cover also prevent hits in a similar manner?

Thanks!

I believe retreats are treated as part of the same attack that caused them, so if you rolled one hit and a retreat that became a hit, then toughness 1 would only negate the first hit, not the second that came as a result of the inability to retreat.