Homebase and Argos owner Home Retail Group Plc (LON:HOME) said today that sales at Argos fell 2.8% to £924m in the second quarter, while Homebase declined 1.1% to £396m. The figures are expected to dent first half group profits by between 20-25% but the company said it was on course to post full year profits at the lower end of market expectations.

At Argos, net new space contributed 2.2%; four new stores opened and two closed in the quarter, taking the portfolio to 749; one store was relocated. Like-for-like sales declined 5% in the quarter. Video gaming and large ticket home-related areas such as furniture saw challenging conditions. Computers, white goods and toys all continued to show good growth, while small ticket homewares sales were ahead. The online Check & Reserve service saw further strong growth, with the internet representing 32% of Argos' sales in total, up from 28% a year earlier. An approximate 125 basis point gross margin decline was driven principally by the anticipated net impact of adverse currency and shipping rates, with promotional activity also being higher year-on-year.

At Homebase, net closed space reduced sales by 1.1%; a further two stores closed in the quarter, reducing the portfolio to 345. Like-for-like sales were flat in the quarter. Seasonal categories saw growth overall, led by garden planting and outdoor furniture. 'Big ticket' sales were also ahead, with growth in kitchens, bathrooms and bedrooms. Sales for the remaining categories were lower overall. Again, an approximate 75 basis point gross margin decline was driven principally by the anticipated net impact of adverse currency and shipping rates.

A share buy-back programme of up to £150m over the following 12 months was announced on 28 April 2010. To date, 44,910,000 shares have been purchased at an average price of 241p and a net cash cost of £109m. The purchased shares represent 5.1% of the 877,445,001 issued ordinary shares at the 27th February 2010 balance sheet date.

Terry Duddy, the chief executive of Home Retail Group, said: "Argos' sales trend saw an improvement compared to the first quarter, despite its market being more challenging. Homebase's sales performance again beat expectations and continued to be ahead of its market. While Homebase has produced a good first half peak trading performance on top of last year's strong result, total group benchmark PBT in the first half is expected…

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