Home Retail shares up on FTSE 100 after raising profit expectations

In the year ended 27 February, Home Retail’s Argos stores reported a fall in like for like sales of 2.1 per cent. The total value of sales was reported as being £4.3 billion. The group’s Homebase stores reported total sales of over £1.5 billion and a rise in like for like sales of 2.7 per cent.

The cold weather in January had a significant impact on Argos sales, which fell 9.4 per cent on a like for like basis in the eight weeks to 27 January. The value of sales in the period was £537 million. By contrast Homebase saw their like for like sales decline just 0.6 per cent in the last eight weeks to £205 million.

In the second half of the financial year sales at Argos fell on a like for like basis by 2.2 per cent to £2.45 billion, while Homebase like for like sales rose 2.6 per cent to £706 million.

Terry Duddy, Chief Executive of Home Retail Group, said, “Group benchmark profit before tax for the year will be around £290m, slightly ahead of current market expectations. This is a good outcome to a challenging year, and is combined with excellent cash generation. The final short trading period reported today saw volatile trading patterns, making it difficult to assess any changes in underlying consumer demand. For the new financial year, we continue to plan cautiously given the uncertain economic outlook, but do so from our position of operational and financial strength.”

Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, commented, “The shares have shrugged off some fairly mixed messages emanating from this statement, spiking in early trade.

“The performance from both Argos and Homebase failed to consolidate gains from earlier in the year. Sales were down over the quarter, blamed partially on the severe January weather, whilst gross margins also headed south for both units. On the other hand, the company remains closely focused on improved efficiencies and cost reductions, and has been able to raise its expected full year profit marginally. In addition, the yield of 5.4% is both supportive and attractive to income seekers in the current interest rate environment.

“Alongside the uncertain economic outlook, the shares have recently suffered from the rotation of investors out of cyclical stocks into more defensive plays. Over the last six months, Home Retail has seen its price lose 13%, during which period the wider FTSE100 has posted a 13% gain. Despite this underperformance, the general market view is that the company remains a hold – albeit a strong one.”

By10:10 shares in Home Retail were up 1.72 per cent to 272.40 pence per share.