Home Retail says too early to call Argos revival
LONDON (Reuters) - Home Retail (HOME.L), Britain's biggest household goods retailer, said it was too early to claim that its troubled catalogue-based business Argos had turned the corner and was set for sales growth after beating quarterly sales forecasts.
The group's shares, which have lost more than half their value in the past year as cash-strapped Britons reined in spending during the economic downturn, soared 24 percent on Tuesday after Argos posted underlying sales well ahead of expectations.
The company said that trading had been volatile, but it was comfortable with market expectations for full-year underlying pretax profit in a range of 37 million pounds to 100 million pounds (36.98 million pounds to 100.12 million pounds), with an average forecast of 67 million pounds.
Sales at Argos stores open for more than a year fell 0.2 percent in the 13 weeks to June 2, its first quarter. That compared with a fall of about 8.5 percent in the previous quarter and exceeded analysts' consensus forecast of a 4 percent decline, according to a company poll.
Argos highlighted an improved performance from consumer electronics, with sales level with the same period last year. This was driven by growth in sales of laptops and tablets, which offset declines in TVs, audio and video gaming.
Home Retail chief executive Terry Duddy said "it would not necessarily be rational at this stage" to predict a return to like-for-like growth in the second quarter and that he was continuing to plan cautiously.
"When you look at the hard numbers on macroeconomics, life has not changed that much; and when you look at the hard numbers as far as consumer confidence, that is still in a difficult place," he told reporters.
He said he was hopeful of "a bit of a feel-good factor" coming through from the Euro 2012 football championships and the London Olympics.
Home Retail shares were up 18 pence at 92.3 pence at 10.40 a.m British time.
Investec Securities analyst David Jeary said: "We will review our investment case when we have seen the outturn of Q2 and can gauge whether the Q1 performance was a flash in the pan or a potential turning point."
ARGOS UPDATE IN OCTOBER
Many British retailers are under pressure as consumers are squeezed by higher prices, muted wage growth and government austerity measures designed to cut record national debt.
Last week, Britain's biggest retailer Tesco (TSCO.L) posted a drop in first-quarter sales.
Argos has been particularly hard hit because its mainly low-income customers have suffered most and because it also faces intense competition from supermarket chains, specialists and online retailers such as Amazon (AMZN.O).
American John Walden started as Argos's new managing director in February and has been given free rein to examine all options for the business, including closing some of its 746 shops, which analysts have called for. He will update the market in October.
He will update the market in October.
Home Retail also owns Homebase, Britain's No.2 home improvement retailer behind Kingfisher's B&Q (KGF.L). Homebase's like-for-like sales fell 8.3 percent, broadly in line with analysts' expectations but worse than a fourth-quarter fall of 6.5 percent.
Most of the like-for-like sales reduction was because of a 15 percent decline in sales of seasonal products, reflecting Britain's wettest April since records began.
"People are not going to go and buy themselves a nice piece of garden furniture when it is 5 degrees (centigrade) and pouring with rain," finance director Richard Ashton said.
Gross margin was down 25 basis points at Argos and up 225 basis points at Homebase.
(Reporting by James Davey; Editing by Hans-Juergen Peters and David Goodman)
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