Home Retail Group sales fall

HOME Retail Group, the owner of Argos and Homebase stores, hassaid sales and profits have been hit hard it by its low-incomecustomers cutting back on spending.

The retailer, most of whose high-frequency shoppers are in thelower-income, mass market segment, has been hit hard by the economicdownturn, which has stifled consumer spending on discretionaryitems.

"In general there is less confidence to spend given the uncertainoutlook," the company said.

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

Mr Duddy was adamant Argos is well-positioned despite analystconcerns over the structural challenges it faces.

He said: "One of the things that I'm very clear about is thatArgos is in a very good place as far as the future of shopping isconcerned," noting that more than 30% of its sales are conductedover the internet, with 1% already being generated by a recentlyintroduced iPhone app."

However, City economists said austerity measures that will beimplemented by the Government will likely erode consumer confidencefurther and this has weighed on Home Retail's shares which havefallen 24% in the past six months.

The group said total sales fell 3%, with Argos, which accountsfor two-thirds of Home Retail's turnover, down 6.5%, and Homebase,which accounts for almost a third of group revenues, 0.8% lower.

Across the group, pre-tax profits dropped by 12% to pound(s)103million in the six months ending in August on revenues that were 3%lower at pound(s)2.7 billion.

Earnings per share fell from 9p to 8.8p, and the interim dividendis held at 4.7p a share.

Group-wide gross margins slid 6% to pound(s)1bn, but operatingand distribution costs were reduced by 4% to pound(s)947m.

Finance director Richard Ashton said the company lowered priceson televisions around the World Cup at its Argos outlets to drivesales. Promotions at Homebase stores were "relatively flat," hesaid.

Christmas is expected to remain at the "same level" of discountsas last year.

Market share remained steady or increased in most categories atArgos, while Homebase maintained its share.

Home Retail said it has strong cash balances and some analystsbelieve this could prove attractive to a private equity predator.