Home Retail Group now expect profits

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It is rare to see a retailer come out and say that its profits are set to beat City expectations. Home Retail Group did just that yesterday. In response, its shares ended the session slightly higher which was quite an achievement given the heavy losses suffered by other blue chips.

Home Retail had a strong performance from its Argos chain to thank for the upgrade. The discount retailer enjoyed a 3 per cent rise in like-for-like sales for the eight weeks to 3 March amid solid demand for televisions and video games systems. Margins at the division also recorded an advance due to supply-chain reforms and better stock management.

In a research note published this morning, the analysts mention that while LFL sales growth at the company’s Argos division improved from 0.2% in 3Q to 3% in the last eight weeks, the Homebase division’s LFL sales growth jumped from -2.9% to 9%. Home Retail Group has announced its second positive profit warning. The pretax estimates for 2007 and 2008 have been raised from £343 million to £365 million and from £376 million to £380 million, respectively.

Terry Duddy, chief executive of Home Retail, said: "We now expect profits… to be slightly above the current market consensus, driven principally by Argos.

"While we are pleased with the most recent performance and the likely outturn for the financial year just completed, we remain cautious on a retail environment that is still expected to be challenging."

He said, "Before investors get too excited, it is also worth noting that Homebase still has its key Easter trading period ahead of it. In this quarter of its financial year, the unit gets around a third of its sales. Yet, given the stock's undemanding trading multiple, just 14 times forward earnings, it is definitely worth holding."

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