Home Retail Group (HRG), owner of Argos and Homebase, has reported an 11% drop in pre-tax profits from £328m to £293m in its results for the year to 27 February 2010.
Group sales were up 2% to £6,023m, and benchmark operating profit fell by 4% to £290m, with a decline of £37m (12%) at Argos and an increase of £26m (177%) at Homebase.

The company also announced a share buy-back of up to £150m over the next 12 months.

HRG chief executive Terry Duddy said: "The results for both Argos and Homebase exceeded initial expectations as we traded through the year. We have achieved further market share gains, demonstrated our commitment to remaining highly price competitive and controlled costs extremely tightly to support both operating profit and cash generation. Our approach over the last year has also prepared us for the year ahead, which is likely to remain difficult for UK retail. By continuing to invest and constantly develop our multi-channel leadership and differentiated formats, we will retain our competitive advantage and therefore remain well placed for the future."

The report said that household spending and consumer confidence have been severely hit, with hard goods and products more closely linked to the housing market suffering the most. However, it said, HRG's total sales increased by £125m over the same period, and both Argos and Homebase have held or increased market share in virtually all of their individual product markets.

Sales at Homebase rose from £1,513m to £1,572m in the period, a like-for-like change of 2.7%, and the number of stores increased from 345 to 349. No store openings are planned in the next financial year.

The report said: "In its peak trading period, the Spring 2009 weather conditions were significantly more favourable than the previous year. This, together with excellent product ranging, maintaining high operational standards and appropriately driving additional demand through promotional and clearance activity, led to a strong performance in seasonal-related categories including horticulture, garden maintenance, and other outdoor living categories such as furniture and barbeques."

Homebase had another year of strong growth in 'big ticket' categories, particularly kitchens, the report added.

Looking forward, the company said capital expenditure will increase in the next financial year to £125-150m from £87m in the year just ended. It will open fewer stores, but sees significant opportunities for multi-channel, customer offer and format developments, said the report.

A strong focus on cash generation has meant a further £130m of net cash was generated during the year. The total dividend for the year was maintained at 14.7p with a final dividend of 10p recommended by the board.

HRG chairman Oliver Stocken said: "The UK home and general merchandise market has experienced reduced levels of customer demand and industry-wide pressures on the cost of goods over the last year. On all measures, the group has produced a good result against this backdrop. Maintaining the dividend, increasing our future investment plans and the announcement of a programme to return capital have all been supported by another year of strong cash generation. These points also reflect the board's confidence in the group's long-term prospects."

The company has been the subject of takeover rumours in recent weeks, with Walmart-owned Asda being tipped as a potential bidder.

A statement from Credit Suisse commented: "The preliminary results have come in broadly in line with pre-guided expectations with benchmark profit before tax of £293. Whilst HRG has announced a £150m share buyback, we believe the unchanged consensus s well as a continued cautious view on 2010 is likely to come as disappointing."

It continued: "The share buy-back of £150m is slightly lower in our view versus the market's expectations and represents just under 6% of issued ordinary shares. on the basis of yesterday's closing price (281p) we earnings the equity per share (EPS) enhancement could be about 5%, although it remains to be seen whether share buybacks will help enhance EPS here given the competitive pressures being faced by the group."