Home Retail Group Plc (HOME) rose the most in 20 months after sales beat expectations at Homebase home- improvement stores and the Argos catalog chain in the last two months of the fiscal year.
The stock gained as much as 17 percent in London trading, the steepest advance since July 11, 2011. The Milton Keynes, England-based retailer increased its full-year pretax profit estimate to about 90 million pounds ($134 million).
Demand for tablet computers helped boost same-store sales at Argos by 5.2 percent in the eight weeks ended March 2, Finance Director Richard Ashton said on a conference call. That beat the 2.3 percent median estimate of five analysts. The company has beefed up its online offerings with tablets as well as more own-brand ranges to lure shoppers. Homebase sales fell 1.5 percent, about half of the drop analysts had anticipated.
“These numbers show the third consecutive quarter of like- for-like sales growth for Argos and industry outperformance for Homebase,” Philip Dorgan, an analyst at Panmure Gordon & Co. in London, wrote in a note to clients.
Dorgan, who recommends selling the stock, cautioned against too much optimism. “We think that Argos’s turnaround will take too long and that Homebase is heading towards losses,” he wrote.
Ashton also warned that the pace of growth would slow this year as more people come to own tablet computers and people in southeast England who needed a new digital television set don’t repeat their purchases.
Home Retail shares rose 14 percent to 151.70 pence at 8:56 a.m. in London, giving the company a market value of 1.23 billion pounds.
Pretax profit will be about 90 million pounds for the year ended March 2, the company said in a statement. The retailer forecast in January that profit would be about 10 million pounds above the consensus analyst estimate of 73 million pounds.
“This has been a good outcome to a challenging year,” Chief Executive Officer Terry Duddy said in the statement.
Homebase has suffered from a tough DIY market, according to Ashton. Same-store sales will probably be “flattish to slightly positive” this fiscal year, he said. Managing Director Paul Loft told Bloomberg News yesterday he expects garden sales will pick up this year on the prospects of better summer weather. The retailer generates about 20 percent of sales from garden products like outdoor furniture.
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