Home Retail Group suffers profits fall

The group posted underlying pre-tax profits of 293m for the year to February 27, but the result was better than original estimates and comes after it raised forecasts twice since the start of the year as conditions improved.

Home Retail, which saw sales across its Argos and DIY chain Homebase rise 2 per cent over the year, also announced it would return more than 150m to shareholders over the next 12 months amid reports it is seeking to fend off pressure to break-up the group.

The group said the 349-strong Homebase chain delivered its strongest sales performance for five years - up 2.7 per cent like-for-like against a 10.2 per cent fall the year before.

Homebase benefited from the withdrawal of competitors such as furniture and kitchen group MFI, which went into administration in 2008.

But strong weather in last year's peak spring home-moving season and self-help measures such as a product range overhaul and targeted promotions also helped trading, according to Home Retail.

The company has likewise been slashing costs to offset a difficult recession and housing slump since the credit crunch struck.

It said there was a fall in store staff roles of around 5 per cent at Homebase and further cuts within Argos, thought to total around 200 roles across both.

Head office staff numbers fell by around 10 per cent at Argos and 15 per cent at Homebase.

Terry Duddy, chief executive of Home Retail, said: "Our approach over the last year has also prepared us for the year ahead, which is likely to remain difficult for UK retail."

Argos had a tougher year as supermarkets have increasingly begun encroaching on its space and due to competition from the likes of online giant Amazon.

Same store sales at Argos dropped 2.1 per cent, although this was better than the 4.8 per cent fall seen the previous year.

It began a brand "refresh" for its Argos business for the first time in a decade in the past year, updating its logo and planning a 70m store refurbishment programme.

The group aims to revamp around 130 of the 745 stores this financial year to include new catalogue browsers, stock checker units, kiosks and technology, as well as updated jewellery displays and improvements to customer areas.

Around 500 stores are expected to undergo the overhaul over the next three years.

Home Retail's move today to return cash to investors through a share buy-back scheme is seen as a way to help boost shares, which have languished over fears of pressure on Argos.

The group is said to have become vulnerable to a potential takeover or break-up bid, given its share price performance and strong cash position - an attractive proposition for increasingly active private equity buyers.