Britain's Home Retail Group Plc , owner of the Argos high street catalogue and Homebase do-it-yourself chains, said it was prepared for an "extremely challenging" 2009, with profits expected to slump 40 percent.
The group, which said it would meet profit expectations for 2008, was responding to the tough economic climate by cutting costs, with 300 jobs shed in the last few weeks.
"Group benchmark profit before tax for the year just ended (year to Feb. 28 2009) will meet current market expectations," said Chief Executive Terry Duddy on Thursday.
"Whilst Argos had a better than expected sales performance in the latest period, the environment for the new financial year will be extremely challenging."
Prior to Thursday's update, analysts were forecasting a consensus pretax profit of about 320 million pounds ($440.3 million) for the year to end-Feb, 2009. For the following year forecasts are pitched at 190 to 200 million pounds.
"We're not looking to change consensus for the outer year today," Finance Director Richard Ashton told reporters.
Shares in Home Retail have lost 17 percent of their value over the past year, a performance in line with the DJ Stoxx European Retail Index.
At 0945 GMT the stock was down 15.5 pence, or 7.60 percent, at 188.5 pence, valuing the business at 1.65 billion pounds.
"We … still see Home as a vulnerable name as retail sales fade, or indeed, if armageddon is rescheduled for later this year," said analysts at Numis in a research note.
Britain's retailers are struggling as indebted consumers rein in spending amid soaring unemployment, sliding house prices and fears of a long and deep recession.
On Wednesday, John Lewis Partnership, the department stores and Waitrose supermarket chain viewed as a bellwether for Britain's retail industry, reported a 26 percent slump in full-year profit.
Home Retail said sales at shops open at least a year fell 1.6 percent at Argos and 10.2 percent at Homebase in the eight weeks to Feb. 28.
The Argos figure exceeded analysts' expectations of a fall of about 7.5 percent while the Homebase outcome was in line with their forecasts.
Sales of consumer electronics and toys rose at Argos but demand for furniture and homewares was weak. At Homebase, strong growth in kitchen sales was more than offset by falling demand for garden maintenance and horticulture products.
Gross profit margins at Argos, which sells about 18,000 products from 730 stores, set out in twice-yearly catalogues, were down 125 basis points, while those at the 345-store Homebase fell 175 basis points.
The margin fall, which came in spite of price rises in Argos' January catalogue, reflected increased product costs, particularly as a result of the depreciation of sterling versus the U.S. dollar.
Home Retail said its year-end net cash would be about 274 million pounds. In addition, it has 700 million pounds of undrawn committed borrowing facilities available.
The group will take an exceptional charge of 35 million pounds in the 2008 results in relation to organisational changes, including the job cuts. It also flagged a further 100 million pounds impairment charge at Homebase.
