Sales up 2.9% for Home Retail Group-owned DIY chain but gross margin is hit by heavy discounting.
Home Retail Group's Q2 trading statement revealed that total sales at Homebase grew by 2.9% to £410m, with like-for-like (lfl) sales up 1.6%, stimulated by "successful promotions and the clearance of over-wintered stock".

Although sales figures exceeded the group's expectations, the increased promotional and clearance activity also served to drive a decline in gross margin, which fell 400 basis points for the 13-week period to August 29.

Growth was led by big-ticket categories, with a particularly strong performance in kitchens, while mixed weather resulted in "a marginal de crease in seasonally-related sales". Sales for remaining categories were described as "broadly flat".

Financial services company Credit Suisse commented on the results: "This was a particularly disappointing performance in our view given the recent strong lfl and gross margin performance reported by its competitor Kingfisher."

Following a recent figures leak, it was announced that Kingfisher expects to report an adjusted pre-tax profit in the range of £345m-£350m for the six months to August 1.

Also part of the Home Retail Group portfolio, Argos saw a slightly stronger performance for the quarter, with total sales up 2.5% to £951m. Lfl sales for the catalogue retailer dropped 1.4%. Growth was seen in consumer electronics but "furniture remained challenging". Its gross margin declined by 125 basis points.

Argos' online Check & Reserve service grew by almost 50%, with the internet accounting for 28% of the retailer's sales.

Home Retail Group chief executive Terry Duddy said: "We are pleased that both Argos and Homebase performed well, delivering cash margin ahead of our expectations. Combined with exceptionally good cost management, this means we now expect Group benchmark profit before tax for the first half to be broadly in line with last year's £121m."

However, he added that, approaching the key Christmas trading period, the group continues "to plan cautiously for consumer demand", and believes adverse currency movements will have a more "significant impact" in the second half of the year."