Argos and Homebase see profits drop

Home Retail Group has reported a sharp downturn in trading, writing off £542 million on its Homebase chain as pre-tax profits dropped 19 per cent to the end of August.

The group, which also owns Argos, paid £900 million for the DIY chain in 2002, but the business is now worth only £358 million.

The write-down resulted in a reported loss, pre-tax, of £437 million.

"The worsening in the outlook for the economic environment suggests that, for consumer spending in Home Retail Group's product markets, 2009 is likely to be at least as challenging as 2008," the group said.

Argos also saw operating profits fall by £14 million to £85.5 million, with the group claiming that lowering prices at the stores "in most categories will be increasingly difficult".

Like-for-like sales were down 3.0 per cent at Argos and down 10.3 per cent at Homebase over the first half of the financial year.

The firm also revealed like-for-like sales since August 31st 2008 at both Argos and Homebase have down in percentage terms by almost ten per cent.

Terry Duddy, chief executive of Home Retail Group, said: "The challenging conditions look set to remain for some time, and indeed have worsened in the turbulent recent weeks. If these conditions continue through our peak trading months of November and December, the profit outcome for the year would likely be around the bottom of current market expectations."

Home Retail's share price initially dropped substantially on the news, but by 11:38 BST it was down just 0.13 per cent.