Update: Home Retail slumps on mixed numbers

14th Jan 2010 15:24

Home Retail fell sharply Thursday, despite predicting full-year profit will beat consensus estimates by £20m, following weaker than expected sales from Argos in the 18 weeks to 2 January.Catalogue shopping unit Argos, which operates 744 high street stores, reported a 3.9% hike in total sales to £1.9bn, but a 0.1% increase in like for like sales was way below forecasts for a 1.5% improvement.The disappearance of Woolworths helped boost toy sales, although good growth in televisions, personal computers and white goods was substantially offset by weakness in video gaming and jewellery.DIY chain Homebase posted a 4.6% rise in total sales to £501m and a stronger than expected 4% jump on a like for like basis, led by big ticket items like kitchens.These performances came at a price though. Heavy discounting and currency movements caused a 250 basis point gross margin decline at Argos and 375 basis point drop at Homebase.'Argos has performed ahead of our plans in its most important trading period, and Homebase trading has continued to be strong,' said chief executive Terry Duddy. 'We now expect group benchmark profit before tax for this financial year to be about £20m ahead of the current market consensus of £265m.''Due to the uncertain economic outlook, we expect trading for the next financial year to remain challenging. We will plan accordingly from a position of continued operational and financial strength.'Charles Stanley keeps its 'hold' rating as it thinks the valuation is starting to look more attractive following recent share price weakness and forecast upgrades. 'We retain concerns, however, over structural pressures on Argos as food retailers expand aggressively into non-food and increasingly use consumer electronics goods as loss-leaders to drive footfall in-store and on-line,' the broker added.'Overcapacity in the UK DIY market means trading is also likely to remain tough at Homebase.'Figures for the remaining eight weeks of the current financial year (3 January 2010 to 27 February 2010) will be published on 11 March and its full-year results on 28 April.