Home Retail sees sales fall at Argos, Homebase

The firm said on Thursday it expected to make an underlying pretax profit of around 290 million pounds for the year to February 27 2010, ahead of expectations of 285 million pounds prior to the statement.

"For the new financial year, we continue to plan cautiously given the uncertain economic outlook," said Chief Executive Terry Duddy.

Home Retail said sales at its catalogue based Argos stores open over a year fell 9.4 percent in the eight weeks to February 27, the bulk of the group's fourth quarter.

That compares with analysts' average forecast of a fall of 7 percent, according to a company poll of eight, and a rise of 0.1 percent in the 18 weeks to January 2.

Argos' sales were also impacted by its spring/summer catalogue being released one week later than last year.

Sales at the firm's Homebase do-it-yourself chain were down 0.6 percent on the same basis.

That compares with analysts' average forecast of a fall of 2 percent and a rise of 4 percent in the prior period.

Gross margins were down 100 basis points at Argos and down 425 basis points at Homebase, reflecting the pressure on buying margins from the weakness of sterling versus the U.S. dollar and price cuts.

Shares in Home Retail have fallen 13 percent over the last six months, underperforming a 13 percent rise in the STOXX Europe 600 Retail Index <.SXRP>.

The stock closed at 267.8 pence on Wednesday, valuing the business at 2.35 billion pounds.

(Reporting by James Davey)