HRG issues profit warning

Home Retail Group, the owner of Argos and Homebase, has issued a profit warning and said its outlook was cautious after shoppers stopped spending.

The company said in a update on Thursday that it now expected pretax profit for the year to February 26 to be between £250m and £255m. In January it had forecast a year profit of about £263m, down from £293m in 2009-10.

Shares in the group slid 7pc in early trading. Terry Duddy, the chief executive, said: "There are clear signs of further pressures on consumer spending, with recent trading conditions, particularly at Argos, proving to be more difficult and volatile than we anticipated."

In the 8 weeks to February 26, sales at Argos stores open for a year or more dropped 4.6pc as consumers cut back on non-essential spending in the face of tax rises, inflation and job losses. This follows a decrease of 4.9pc in the 18 weeks to January 1.

Homebase, the DIY and Gardening goods chain, fared better with like-for-like sales up 3.8pc in the 8 weeks to February 26.
Argos' gross margin fell 150 basis points, while Homebase's was up 300 basis points over the eight weeks, which was flattered a weak comparative period in 2010 when trading was hit by heavy snow.

For the full year Home Retail Group expects like-for-like sales performances could be a low-to-mid single digit percentage decline at Argos and broadly flat at Homebase in the 2011-12 year, with a marginal reduction in gross margin at Argos and a marginal improvement at Homebase.

"Against the backdrop of the challenging economic environment, and taking in to account our most recent trading, we are now planning with increased caution for the year ahead," Mr Duddy said.

Shares in Home Retail, which last September lost its place in Britain's FTSE 100, have lost nearly a quarter of their value over the last year.

Investec warned in a note that the dividend could be under threat due to a rise in the cost base.

Source : The Telegraph