Home Retail profits fall in tough climate

Home Retail Group reported an 11 per cent drop in pre-tax profits to 103m in the 26 weeks to August 28, after a slight fall in sales to 2.7bn.

Argos revenues were down 6.5 per cent on a like-for-like basis, leading to a four per cent total decline in sales for the catalogue business at 1.8bn.

The group warned that Argos' core customers had been hit harder by the economic climate and while sales of smaller products, such as toys, were improving, demand for big-ticket items including furniture and technology products was suffering.

There was a better performance at Homebase, which is also owned by Home Retail, as like-for-like sales declined 0.8 per cent to 855.3m.

Matthew McEachran, a retail analyst at Singer Capital Markets, said: "We remain cautious on the group's earnings prospects over the next 18 months given its overexposure to the UK mass market customer through Argos, the UK housing market through Homebase and the likely squeeze on consumer spending in 2011.

He added that government spending cuts would put further pressure on the disposable incomes of many of the group's customers.

Despite the slide in profits and sales, the group said it was still in a position to invest in Argos and Homebase before the end of te financial year.

Terry Duddy, chief executive of Home Retail Group, said: "We are about to enter our busiest trading period, and whilst we are planning cautiously, we do so from a position of operational and financial strength.

"This position also allows us to continue to invest in both Argos and Homebase, further extending our multichannel leadership and differentiated formats.

"This will maintain our competitive advantage and ensure the group remains well-placed for the future."

Argos currently has 749 stores in the UK, while Homebase has 345 stores.