Argos owner nudges up profit expectations after sales surge

LONDON, March 13 (Reuters) - Britain's Home Retail Group (Frankfurt: PZR.F - news) said annual profit would be slightly above the top end of market forecasts after it delivered a much stronger-than-expected finish to the year at its Argos and Homebase businesses.

The firm said on Thursday it expected group benchmark pretax profit to be "slightly ahead" of the top end of the current range of market forecasts of 107 to 111 million pounds ($184 million). In January the firm had guided to an annual profit towards the top end of forecasts of 90-109 million pounds.

Sales at household goods retailer Argos rose 5.2 percent at stores open over a year in the final 8 weeks of its fiscal year to March 1, well ahead of forecasts of 1.8 percent, driven by strong demand for electrical products like TVs and consoles.

Sales on the same basis at DIY chain Homebase rose 9.3 percent, also ahead of forecasts for a 3.4 percent rise, helped by growing sales of "big ticket" items like kitchens.

After a tough time of trading during the economic downturn, in which underlying pretax profit shrank to 91 million pounds in fiscal 2013 from 433 million five years before, the group began implementing a turnaround plan aimed at pushing Argos sales up 15 percent to 4.5 billion pounds by 2018.

The company is reinventing Argos, which makes around 70 percent of group revenue, from a catalogue firm to a digitally-led business, targeting higher sales from tablets and mobiles and hoping to cash-in on its easy in-store collection offering. Homebase stores are also being revamped.

Internet sales for the full-year represented 44 percent of total Argos sales, up from 42 percent a year ago.

Home Retail (Other OTC: HMRLF - news) said in a response to a review regarding the sale of Payment Protection Insurance (PPI) to its customers, the group expects to increase its provision for customer redress by 25 million pounds. It would not say what the total amount was but added that the charge would be an exceptional item.

Shares in Home Retail, which in January named Argos boss John Walden as its new chief executive, closed at 205.1 pence on Wednesday, up 58 percent on a year ago, valuing the business at 1.7 billion pounds.