Argos and Homebase say cautious Christmas in store

Home Retail, the owner of the Argos and Homebase stores, warned yesterday that it expects the home- improvement market to contract for the third successive year in 2007.

Publishing its maiden set of interim results, since its demerger from GUS, the company also said it was cautious in its outlook for the retail market as a whole over the short term, warning it was still unclear what effect the two recent interest rate rises would have on consumer confidence.

The DIY market shrank by between 6 and 7 per cent last year, and is set to be down by as much as 4 per cent again this year. Home Retail said it is planning for it to fall again in 2007, but by less than the current year.

Group profits for the six months to 30 September were down 10 per cent, broadly in line with analysts' expectations. Operating profits were up by 22 per cent at Argos on the back of a 4.6 per cent rise in like-for-like sales. However, profits fell by 22 per cent at Homebase, where like-for-like sales fell 2.7 per cent.

The chief executive Terry Duddy said the group had been encouraged by the fast growth in its Argos internet business, which accounts for 15 per cent of all orders. He said this had been growing by 50 per cent per annum.

Although the home improvement market continued to suffer, Mr Duddy said he was pleased Homebase had outperformed the market as a whole. He said the chain was attempting to distinguish itself from its competitors by extending its home furnishings offer. The group has launched a new 270-page home furnishings glossy catalogue, which it has rolled out in 100 stores, and may roll out further in the new year. Homebase is also piloting a new kitchen installation service in around a dozen of its stores.

Mr Duddy played down the threat of Tesco moving into the Argos space with the roll-out of its Tesco Direct stores. He said: "What they've done at this stage really hasn't had any effect in terms of what we'll be doing for Christmas."

He said he expected the Christmas big sellers to be the new Nintendo Wii games system as well as "anything pink".

Shares in the group, which have risen 3.4 per cent since the demerger last month, closed down 2p at 424p.