Home Retail Ups Profit Expectations as Argos Shines

Britain's Home Retail Group expects annual profit to be slightly above analysts' expectations, boosted by a strong performance at its Argos shops, but said on Wednesday that trading remained tough.

Finance Director Richard Ashton told reporters he expected analysts' average profit forecast to rise by about 10 million to 15 million pounds ($19million to $29 million) from 360 million.

Home Retail, created from the break up of conglomerate GUS last year, made a profit before tax and exceptional items of 337 million pounds in the comparable period the year before.

However, Ashton remained cautious about prospects for Britain's retailers.

"We also feel that the impact of three interest rate rises is still to come through in terms of consumer spending," he said on a conference call.

Analysts were impressed with the strong end to Home Retail's financial year, driven by demand for televisions and video games systems at Argos and kitchens and garden equipment at its Homebase do-it-yourself (DIY) stores. But many also remained concerned about a possible slowdown in consumer spending.

"We still think food retail is a better place to be in than non-food," Numis Securities analysts wrote in a research note, keeping a "hold" investment rating on Home Retail shares.

The shares traded up 0.7% at 424-3/4 pence, outperforming a 1.5% fall on the UK's benchmark FTSE-100 index and valuing Home Retail at about 3.7 billion pounds.

The stock has performed broadly in line with the UK retail sector since making its market debut at 420 pence on Oct. 9.

It has been periodically boosted by speculation of a possible private-equity bid for the group. Ashton declined to comment on whether Home Retail had received any bid approaches.

Competing with Tesco

Home Retail said like-for-like sales at its catalogue-based Argos stores were up 3.0% in the eight weeks to March 3, giving a rise of 2.3% for the full financial year.

Ashton cautioned, however, that the chain would be up against very tough comparable figures in the coming months, due to a surge in spending on flat-screen TVs in the run-up to last year's soccer World Cup.

Like-for-like sales at Homebase were up 9.9% in the eight weeks, the first rise reported by the chain for around two years and cutting the full-year fall to 1.4%.

Ashton said the big increase was due mainly to an extremely weak trading performance in the comparable period last year and said it was too early to call a recovery in DIY markets.

Ashton was also confident that Argos could compete with Tesco Direct, a new catalogue from Britain's biggest retailer which is due for a full launch this month.

"We still think this is a story of us and Tesco versus the market and not us versus Tesco...We think we've got the scale to compete."