UPDATE 2-Home Retail lifts profit forecast as Argos sales rise

Thu Mar 14, 2013 6:11am EDT

* Q4 Argos lfl up 5.2 pct, Homebase down 1.5 pct

* Raises 2012/13 FY profit to 90 mln stg

* Shares rise as much as 15 pct

By Neil Maidment

LONDON, March 14 (Reuters) - Home Retail, Britain's biggest household goods retailer, posted a sales surge at Argos and upgraded its annual profit forecast for the second time in 2013, sending its shares soaring.

The group, which in January raised its full year profit forecast by 10 million pounds to 83 million, said it now expects pretax profit to be around 90 million pounds ($134 million) after fourth-quarter underlying sales at Argos rose 5.2 percent.

That strong performance in the 8 weeks to March 2 was driven by demand for tablets and electrical goods, and came in well ahead of analysts' consensus for a 2.1 percent rise, prompting shares in the group to rise 15 percent in early trading on Thursday, before falling back slightly.

"This has been a good outcome to a challenging year," Home Retail Chief Executive Terry Duddy said.

Like many British retailers, Home Retail Group has felt the pressure of consumers being squeezed by higher prices and muted wage growth, with Argos also facing big competition from online rivals and supermarkets.

The improvement was Argos' third consecutive quarter of positive like-for-like growth and comes as the group tries to reposition it from a catalogue-led business to a digital one to help reverse a slump in profit that has tumbled from 376 million pounds to less than 100 million since 2008.

The group's turnaround plan is aimed at growing Argos' sales by 15 percent to 4.5 billion pounds by 2018 by focusing on online, mobile and tablet transactions to attract shoppers.

Shares in the group, which have risen 40 percent in six months, were up 11 percent to 147.7 pence at 1006 GMT.

CAUTION

Hargreaves Lansdown analyst Keith Bowman was upbeat but cautioned not all analysts were convinced about a recovery.

"The turnaround appears to be gaining traction... nonetheless, with the recovery still in its infancy and the outlook for the consumer still highly challenged, analysts have remained sceptical. It may still be too early to become an outright optimist," he said.

Internet sales rose from 40 percent to 43 percent of sales in Argos' fourth quarter, with sales via mobiles up 117 percent.

Total sales for the 52 weeks to March 2 were around 3.9 billion pounds, with underlying sales up 2.1 percent - a rate the group said it expected to remain the same in 2013/14.

At the company's Homebase division, Britain's No. 2 home improvement retailer, fourth quarter underlying sales fell 1.5 percent, better than analysts' consensus for a 2.8 percent fall, while margins also improved.

The chain has struggled as constrained consumer finances spell delays for DIY projects, a scenario also reflected at the UK's No.1 home improvements retailer, B&Q, which posted a 6.4 percent fall in fourth-quarter sales last month.

Total sales for the year at Homebase were around 1.4 billion pounds, with underlying sales down 4.9 percent. The group said it saw like-for-like sales improving to flat in 2013/14.

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