Boom in flat-panel TVs rescues profits at Home Retail

The dismal summer weather has proved a washout for Home Retail's DIY chain Homebase, which has reported an 8 per cent slump in like-for-like sales in the second quarter after consumers avoided shelling out on garden furniture and barbecues.

But strong sales of flat-screen televisions, video games systems and mobile phones at the company's high street and catalogue division Argos offset the poor performance at Homebase, and shares in the company rose 10p to 410.75p. Like-for-like sales at Argos jumped 1.8 per cent in the three months to 1 September to £1.8bn.

The chief executive of Home Retail, Terry Duddy, remained cautious on the outlook for the consumer in the run-up to Christmas, but said there was "no crystal-clear evidence yet that successive interest rate rises are beginning to bite".

Mr Duddy said he believed technology products would sell well again during the forthcoming festive season, while the flat-panel television boom shows no sign of slowing. He cautioned that uncertainty remained over when the effect of rising interest rates would filter through to the consumer. "We don't know when this will arrive but it could come before Christmas," he added.

Mr Duddy insisted that the weaker-than-expected performance at Homebase could be explained by the bad weather. "If you take every single category that was underperforming, then you can see they are all outdoor weather-related products," he said. Sales in this category fell 20 per cent and have led to up to £30m of unsold stock. This will be held to be sold next year.

Mr Duddy said kitchens, homeware and core DIY products had performed better with "flat to positive sales growth".

Mr Duddy said the fall in the average selling price for flat-screen televisions had benefited Argos as consumers moved towards mid-price products. "The market price is falling but Argos's average price is growing," he said.

Mr Duddy added that he expected strong growth in first-half profits at Argos, above the £70m to £90m range analysts forecast, while profits at Homesbase should hit £40m.

Total first-half sales at Argos – which is on course to roll out an extra 30 stores this year – were up 4.7 per cent to £1.8bn, while at Homebase total sales fell 0.3 per cent in the six-month period to £854m.

Christian Koefoed-Nielsen, an analyst at Panmure Gordon, said the business is "better placed than most to trade through a more difficult trading environment but we continue to remain cautious on the outlook for consumer spending given the likelihood of further interest rate rises".

Richard Ratner said the figures should lead to "a decent first half profits outcome". "Both we and, to some extent, the company worry about the retail outlook for the second half, especially for 'big ticket'," he added.