Home Retail more pessimistic on consumer outlook

By Mark Potter

LONDON (Reuters) - Home Retail, the country's biggest household goods retailer, said it was more pessimistic about prospects for consumer spending, hitting its shares despite better-than-expected sales at its main Argos chain.

The group, which also runs the Homebase do-it-yourself chain, said on Thursday that rising inflation had reduced the chances of an interest rate cut, offering no relief to consumers suffering from rising food, fuel and mortgage costs.

"Our consumer outlook view going forward, and by that I mean probably more into 2009, is probably slightly more pessimistic than it was," Finance Director Richard Ashton told reporters.

Home Retail shares, which have more than halved in value over the past year, slumped 6.6 percent to 209 pence by 8:55 a.m., having hit a new low of 207-1/2 pence, valuing the firm at about 1.9 billion pounds.

Amid mounting gloom over consumer spending, shares in Carphone Warehouse, Europe's biggest independent mobile phone retailer, plunged as much as 18 percent after it also expressed caution and reported falling demand for broadband Internet connections.

Landsbanki analysts said Home Retail shares looked cheap historically and compared to the rest of the retail sector.

"(But) we expect a further deterioration in trading conditions and so still see downside risks to estimates," they wrote in a research note, keeping a "hold" recommendation.

Sales at Argos shops open more than a year were flat in the 13 weeks to May 31, beating analysts' expectations of a fall of between 2 and 3 percent and also outstripping a household goods market which Ashton said was falling around 3 to 4 percent.