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Trading at Home Retail to be driven by Argos

Published: 9 June 2008
Report on Thursday expected to show Argos remaining strong; Homebase to continue struggling.
Several analysts looking at the forthcoming trading statement from Home Retail Group are forecasting dips in sales performance from both Argos and Homebase.

Dresdner Kleinwort is forecasting a three per cent fall in like-for-like sales at Argos and a 11 per cent fall in like-for-like sales at Homebase.

Goldman Sachs was more upbeat. The investment house said that it expects the retailer to benefit from low prices offered at the Argos chain while Seymour Pierce said in its note that Argos' – the core business, accounting for 85% of operating profits – defensive model could strengthen its share of online sales.

"Argos has significant opportunity to grow internet sales (in particular Check and Reserve), which grew by 30% in 2007/8 and now accounts for 21% of Argos' sales," the brokerage house said. "It also sells a broad mix of categories and is well placed to exploit new growth opportunities, such as games, which should help to contain the vagaries of a more difficult trading environment."

It added that Argos leads Tesco Direct's operation in terms of stock management, ranges and customer gratification.

Homebase, in contrast is likely to continue to underperform the UK diy sector; Seymour Pierce points out that Homebase now accounts for less than 15% of operating profits forecast in 2008/9 and first quarter sales are likely to be weak – possibly worse than B&Q's.

At the end of April Home Retail reported negative like-for-like sales, although underlying pre-tax profits were £433m in the year to March 1.

Despite the poor trading conditions, the company – which said it has a 10% share in the home and general merchandise market - has also set out growth plans in its annual statement to trade through tough economic conditions.

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