Sales of flat-screen TVs boost Home Retail profits

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The Independent Online

Strong sales of flat-screen televisions at Home Retail's catalogue business offset weakness at its DIY chain Homebase over the summer, helping the retailer to report a higher-than-expected 40 per cent rise in first-half profits yesterday.

Home Retail said the rise in group profits to £149.8m was due to cost control and to the growth of "clicks and mortar" multi-channel retailing at Argos, where customers can reserve online then pick up in store. Argos launched its biggest ever catalogue in July, with 5,000 new products, boosting its range by 9 per cent.

Analysts were upbeat on the stock but said the outlook is less certain as the company faces fierce competition from Tesco, which recently launched a rival home shopping service, while Homebase remains exposed to the fortunes of the UK stock market. Its shares ended up 6p at 393p.

Like-for-like sales grew 1.4 per cent at Argos in the six months to 1 September but slipped 2.5 per cent at Homebase. Profits rose 50 per cent at Argos and 12 per cent at the DIY chain.

Terry Duddy, chief executive, said the group had performed "very strongly both from an operational and financial point of view".

However, he struck a note of caution on the outlook in the run-up to Christmas due to concerns over consumer spending. "Although we remain cautious given the uncertain consumer outlook, as we move into the key seasonal period both businesses continue to enhance their customer offers, while also benefiting from the leverage of our shared group operations," he said.

He added that the group was expecting "a technology Christmas" with flat-screen televisions, video games and consoles all predicted to be big sellers, while Transformer toys and the iTeddy, an interactive teddy bear containing a computer, will feature on children's wish lists.

Keith Bowman, equity analyst at Hargreaves Lansdown, said this was "very much a story of two halves". "Argos is enjoying continued sales growth whilst Homebase is being squeezed ever tighter on cost and operational efficiencies," he said, adding that Argos "is for now the only truly 'clicks and mortar' retailer, with its 'check and reserve' scheme witnessing a 43 per cent increase in orders".

Shares in Home Retail, which have outperformed the UK retail sector by around 9 per cent this year, rose 2.5 per cent or 10p to 397p, helped by a ratings upgrade by Panmure to "buy" from "hold". The company was spun out of the conglomerate GUS in October last year, when its shares started at 420p.

Nick Bubb, retailing analyst at Pali International, said "the fears that investors had at the time of the demerger look to have been overdone".