Homebase hit by High Street slump

By Simon English for MailOnline
Updated: 08:31 EDT, 12 June 2008

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Further signs of the economic gloom engulfing the High Street emerged today, when DIY retailer Homebase reported a slump in sales even worse than an already pessimistic City had expected.

One of several big ticket retailers struggling with sales

Relegated: Homebase parent company Home Retail Group will fall out of the FTSE 100 Index.

With rivals also admitting that sales of big-ticket items are on the slide, Homebase said like-for-likes are down 12% in the 13 weeks to the end of May at £440m.

Parent company Home Retail Group was boosted by a decent performance from catalogue business Argos, which managed to keep sales flat over the same period at £929m.

This was thanks to customers' increasing willingness to buy online - 22% of all Argos sales - and the continuing fascination of teenagers for computer games and the consoles needed to play them.

As a result, Home Retail - which will drop out of the FTSE 100 in a reshuffle today - thinks it will still achieve City profit forecasts for the year of around £380m despite the economic downturn. But even if it does, this will still be down from £433m last year.

Chief executive Terry Duddy admitted he was 'battening down the hatches', but said new store openings would continue as planned and that he had no plans to cut costs by firing staff.

'We already run a pretty tight ship,' he said.

Duddy described the performance at Argos as 'resilient' while Homebase was 'worse than we were planning, but not that far off our internal plan'.

The shares down from a year high of 469p, slipped further today, losing 14p to 219¾p.

With consumer confidence falling to new lows each week, retailers are engaged in a tough battle, trying to lure customers in with price cuts while maintaining profit margins on the most popular items. Homebase rival B&Q saw like-for-like sales down 8% over the same period.

Yesterday, Tesco interrupted a pattern of relentless sales growth to say consumers were buying less non-food items than before. Retailers were also buffetted by the bad weather in March and April, which makes the comparison with the favourable conditions of a year ago look especially harsh.

Duddy said: 'While the consumer outlook remains challenging, we approach it from a position of both financial and operational strength.'

Stock market information

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Ins and outs of the footsie

Home Retail Group is not alone in being ejected from the ranks of the FTSE 100. In the next reshuffle of the London Stock Exchange's top 100 companies index, Alliance & Leicester and housebuilder Persimmon are also being given the boot. Both have suffered immensely from the credit crunch and the massive sell-off in property shares.

There will be no housebuilders left in the Footsie. Sugar refiner Tate & Lyle is also being relegated, having struggled to keep up sales of its Splenda sweetener. In their place come coal-fired electricity generator Drax, engineer Invensys, oil industry services group Petrofac and Ukrainian iron ore producer Ferrexpo.

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