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Homebase profits plunge 25% as retailer eyes Christmas lift

By Graeme Evans

Published 10/09/2010

The owner of the Argos and Homebase chains warned its half-year profits will be down by as much as 25% as it battles tough trading conditions.

Home Retail Group said like-for-like sales at Argos fell 6.5% in the six months to August 28, with margins at the catalogue chain also under pressure due to promotional activity and the impact of currency movements on import costs.

Homebase's like-for-like sales were down 0.8% after a better-than-expected second quarter performance saw it match trading figures a year earlier.

Overall, Home Retail said first-half profits were expected to reduce by between 20% and 25% and that it was on course for full-year profits of between £250m and £275m - in the bottom half of the City's forecast range.

Home said the final outcome will depend on Christmas trading at Argos, where market conditions have recently become more testing, particularly in video gaming and "big-ticket" home- related areas such as furniture.

Computers, white goods and toys all continued to show good growth, while lower priced homewares sales were ahead of a year ago.

And while Argos's like-for-like sales were down 6.5% overall for the half year, the trend showed an improvement in the second quarter with a drop of 5%. Total sales for the 749-store chain were down 4% at £1.81bn.

A good season for sales of garden planting and outdoor furniture items boosted Homebase, while demand for kitchens, bathroom and bedrooms was also stronger.

Total sales at Homebase, which operates from 345 sites, reduced by 1.2% to £855m in the half year.

Chief executive Terry Duddy said: "Argos' sales trend saw an improvement compared to the first quarter, despite its market being more challenging.

"Homebase's sales performance again beat expectations and continued to be ahead of its market."

Mark Photiades, a retail analyst at Singer Capital Markets, said the update pointed to half-year profits of between £92m and £98m and a full-year drop of 15%.

"Home Retail's exposure to the mass market consumer through Argos, and the housing market through Homebase, leaves us with concerns about earnings prospects over the coming 18 months," Mr Photiades added.

Home Retail will lose its place in the FTSE 100 Index when the quarterly reshuffle of the top flight takes place later this month.

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