Strong Christmas trading boosts Argos profit hopes

The company raised forecasts for the year to February 27 as Argos performed ahead of hopes with like-for-like sales growth of 0.1 per cent and Homebase delivered a four per cent rise in same-store sales in the 18 weeks to January 2.

While predicting that profits will be 20 million higher than the City's forecast of 265 million, chief executive Terry Duddy warned the company was braced for trading conditions to remain challenging in the next financial year.

Home Retail described Christmas toys sales at Argos as excellent and also reported good growth in televisions, personal computers and white goods.

Growth in these areas was offset by market weakness in video gaming, while jewellery was marginally down on a year earlier.

It added that the trend in furniture and homewares continued to improve and was only marginally negative in the 18 week trading period.

Total sales at the chain were 3.9 per cent higher at 1.92 billion after a net five new stores opened in the quarter, taking the portfolio to 744 stores.

More sales were achieved through the Argos website, with online business accounting for 35 per cent of sales, up from 30 per cent a year earlier.

At Homebase, the recent recovery continued after total sales grew by 4.6 per cent to 501 million in the 18 weeks. Most of this was due to the performance of stores open for more than a year, with growth led by big ticket areas such as kitchens.

Both chains said profit margins were impacted by increased promotional activity and adverse currency movements, which have increased the cost of imported goods.

Despite today's profits upgrade, Seymour Pierce retail analyst Kate Heseltine maintained her sell recommendation on the stock.

She said: "Argos is coming under increasing pressure from the food retailers ramping up their non-food efforts and from Currys owner DSG, which has put out an impressive update today and continues to strengthen its UK business."