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Home Retail profit expectations improve

Published: 13 January 2011
Home Retail Group (HRG) has revealed a better than expected performance despite "volatile trading conditions" in a Q3 interim management statement released today.
Home Retail profit expectations improve
The company, which owns Argos and Homebase, now expects group profit before tax for the full year to be around the mid-point of its previously guided range of £250-275m.

Total sales at Argos declined by 3.2% to £1.861m for the 18 weeks to January 1, 2011. Like-for-like sales declined by 4.9% in the period, which also saw six new stores opened and one closed.

The internet represented more than £700m (38%) of the retailer's sales, up from 35% a year earlier, with more than three quarters of these accounted for by online reservations.

An approximate 25 basis points gross margin decline was driven principally by increased clearance activity, said the statement.

Meanwhile total sales at Homebase declined by 2.8% to £487m for the period, which saw four stores closed, reducing the portfolio to 341.

Like-for-like sales declined by 1.2%. Big-ticket sales were ahead, while sales for the remaining categories saw modest declines.

The retailer saw gross margin increase by 75 basis points, driven by reduced promotional activity.

HRG chief executive Terry Duddy commented: "Argos has performed in line with our original expectations for its peak period, despite some particularly challenging and volatile trading conditions in the build-up to Christmas. Homebase has again traded well in what is for them a less seasonally important selling period."

Market analysts Credit Suisse believes that HRG's upgraded profit expectation is primarily being driven by better cost containment and upgraded profit expectations at Homebase offsetting an approximately £5m weather-related profit impact at Argos.

A spokesperson said: "We still believe that Argos is vulnerable to medium-term structural pressures as supermarkets continue to develop their non-food offer, which in our view is likely to restrict Argos' ability to expand EDIT margins over the longer term."

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