Home Retail weathers Argos woes

Home Retail Group toasted an upgrade in full-year profit expectations yesterday, despite the dire January weather contributing to one of Argos's worst performances in its 37-year history in recent weeks.

The general merchandise group, which also owns the DIY chain Homebase, said that pre-tax profits would come in at £290m for the year to the end of February, about £5m ahead of market expectations. Home Retail, which has no net debt, also boasted £410m of free cash on its balance sheet.

However, Argos suffered a 9.4 per cent fall in underlying sales for the eight weeks to 27 February, as January's snow hit footfall. The catalogue giant's sales were also dented by the late launch of its spring and summer catalogue, which happens every five to six years due to the launch day of Saturday shifting in the calendar.

Terry Duddy, the CEO of Home Retail, said: "This eight-week period is one of the worst performances that we have reported publicly." It reported a similar drop in October 2008.

Mr Duddy said that without the snow and late catalogue launch, underlying sales would be down by only 2 to 3 per cent. Total sales at Argos fell by 6.6 per cent to £537m over the eight weeks. He said the catalogue retailer had seen a "slowdown" in sales of televisions and video games recently, but had enjoyed "reasonable" trade on white goods and PCs. Over the full year, Argos's underlying sales slipped by 2.1 per cent. Mr Duddy said: "The mass-market customer is saying, 'Life is pretty tough and I am pretty cash-strapped.'"

In contrast, Homebase delivered better underlying sales, down by just 0.6 per cent over the eight weeks, driven by robust sales of kitchens and bathrooms. But the 349-store DIY chain's gross margins were down 425 basis points, largely pulled lower by the weak pound against the dollar.