A price-cutting drive by DIY giant Homebase failed to prevent annual earnings at the chain falling below expectations.
Homebase owner GUS said in a trading update that weakness in the home improvement market had deepened in recent months and that its lower prices failed to generate the upturn in sales volumes that it had hoped for.
GUS is now expecting Homebase to achieve underlying earnings of £50 million from the financial year just completed, compared with the £65 million forecast by the City and £110 million achieved a year earlier.
The update, which covered the final six months of the financial year - showed that GUS offset tough conditions in the DIY sector through its catalogue arm Argos and credit-checking business Experian, which posted record sales.
However, Merrill Lynch still reduced its group profits forecast by £10 million to £820 million for the year to March 31 2006 and warned it expected margins at Home-base to fall further.
Merrill believed Home-base's like-for-like sales were eight per cent lower in the final quarter of the period, after GUS said like-for-like sales dipped by five per cent in the five months to the end of February. The company did not include figures for March as sales are distorted by the presence of Easter last year.
Argos achieved a robust performance with new store openings pushing sales up by nine per cent in the six months to March 31, although the figure without the additional space showed no change on a year earlier.
Experian remained the company's strongest operation with sales ahead of forecasts following growth of 25 per cent at constant exchange rates in the six month period. Most of the business operates from North America.
GUS chief executive John Peace hailed the performance of Experian and pointed out that sales at Homebase and GUS outperformed their markets in the period.
However, he added: "We continue to remain cautious on the outlook for UK retailing, especially in DIY."
While shoppers showed no appetite for DIY and decorating, GUS said Homebase still experienced strong demand for kitchens and furniture.
GUS added ten stores to its Homebase estate during the financial year, giving it 297 sites by the end of February.
The group said Argos benefited from strong demand for consumer electronics, bedroom furniture, textiles and white goods. Jewellery remained a difficult market, it added. ..SUPL: