Argos Owner Warns Of Poor Start At Homebase

Home Retail Group today sparked fresh fears about a worsening consumer slowdown after warning that its Homebase DIY chain had made a weaker than expected start to the year.

The group, which also owns Argos, said that Homebase was suffering from shoppers tightening their belts while dismal weather had dampened trading over the past two months

Terry Duddy, chief executive at Home Retail Group, insisted that the DIY business was performing well operationally but that it was clear that the group was entering a “weakening consumer environment”.

Annual results today showed that while Argos generated record profits in the year to March, operating profits at Homebase fell 15 per cent.

Mr Duddy’s comments come a day after the CBI said that retail sales in April were the worst since 2005. DIY stores and furniture retailers are thought to have been hardest hit as consumers cut back.

Retailers are also suffering from comparisons with a year ago when the high street benefited from a heatwave.

Home Retail today said that it was too early to gauge how Homebase’s poor sales in March and April would affect the outcome for the full 2008-2009 financial year. However it said that like-for-like sales at both Argos and Homebase were expected to fall over the coming months.

Pre-tax profits across Home Retail Group in the year to March 1 rose 15 per cent to £433 million, in line with analyst expectations. Total sales rose 2.3 per cent to nearly £6 billion, with like-for-like sales at Argos up 0.7 per cent. Homebase suffered a 4.1 per cent fall in like-for-like sales.

Mr Duddy said: “The group has demonstrated a strong performance in the financial year just completed.

“However, the outlook for consumer spending looks weaker for the new financial year. A more difficult consumer environment is likely to result in a negative like-for-like sales performance in both businesses in the short-term.”

Despite the gloom, shares rose 13p to 255.75p on the back of the strong performance by Argos.

Operating profits at the catalogue chain rose nearly 16 per cent in the year to March 1, despite the tougher trading conditions, on the back of strong sales of video-games systems, flat-screen TVs and sat-nav products.

Mr Duddy said that Argos had also gained market share in more subdued or declining markets, such as pre-pay mobile phones, digital cameras, white goods and toys.

Nick Bubb, analyst at Pali International, said: For all the doom and gloom, Argos has had a fantastic time.

Shareholders will receive a full-year dividend of 14.7p per share, up 13 per cent.

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