Home Retail ups profit view

Recent trading had been "volatile," making it difficult to assess any changes in underlying consumer demand, the company said on Thursday.

Home Retail said it expected to make an underlying pretax profit of around 290 million pounds for the year to February 27 2010, ahead of analysts' consensus expectations of 285 million pounds prior to the statement.

"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," said Chief Executive Terry Duddy.

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.

Some analysts reckon the recent share price fall makes Home Retail, which ended the year with net cash of 410 million pounds, vulnerable to a private equity bid.

A British Retail Consortium survey on Tuesday said retail sales recovered in February from January's snow related slide, helped by strong sales of clothing and footwear.

However, analysts remain wary about retailers' prospects amid fears that steps to cut government borrowing after a general election, that must be held by June, could drag down consumer confidence.

Home Retail blamed early year snow and sub-zero temperatures for sales falls at Argos and Homebase in the eight weeks to February 27, the bulk of its fourth quarter.

Sales at Argos stores open over a year fell 9.4 percent, worse than 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.

(Editing by Julie Crust, Mike Nesbit)