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UPDATE 3-Home Retail, Kesa add to recovery hopes

Published 09/10/2009, 05:48 AM

* Argos's Q2 lfl sales down 1.4 pct, Homebase up 1.6 pct

* Sees H1 underlying pretax profit of 121 mln pounds

* Kesa's Comet Q1 lfl sales up 0.3 pct, Darty down 3.7 pct

* Home and Kesa shares down on profit taking

(Adds detail, CEO, analyst comments, shares)

By James Davey

LONDON, Sept 10 (Reuters) - Two of Britain's biggest retailers, Home Retail Group and Kesa Electricals, posted better-than-expected trading updates, providing further evidence a consumer recovery is underway.

Home Retail, the UK's largest household goods retailer, beat second-quarter sales expectations at both Argos, its town centre catalogue-based retailer, and Homebase, its DIY business, while Kesa smashed analysts' forecasts for first-quarter trading at Comet, Britain's No 2 electricals retailer.

Also on Thursday, Carpetright, Britain's biggest floorings retailer, said it was "cautiously optimistic" ahead of its key autumn trading period, while Wm Morrison Supermarkets, the UK's fourth-biggest grocer, posted a 22 percent rise in first-half profit.

The updates were published as a survey from the Halifax said house prices in Britain rose 0.8 percent in August and a day after a survey from Nationwide said British consumer morale hit its highest level in more than a year in August, boosting hopes of rapid recovery from recession.

However, the overall picture remains cloudy as a survey from the British Retail Consortium on Tuesday showed UK retail sales fell in August for the first time since May.

"We are more optimistic than where we were at the beginning of the year ... (but) you're still seeing lots of signs where we're seeing consumers curb their spending, we're seeing them trading down constantly," Terry Duddy, Home Retail's chief executive, told reporters.

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Home Retail forecast underlying pretax profit for its first half to Aug. 29 in line with last year's 121 million pounds, ahead of analysts' consensus expectations of about 95 million.

UBS, its joint house broker, raised its year to end-Feb. 2010 forecast from 225 million pounds to 260 million pounds.

However, shares in Home Retail, up over 32 percent in the last three months, fell as investors booked profits.

The stock was down 6.5 percent at 308.4 pence at 0928 GMT, valuing the business at 2.68 billion pounds.

"Home Retail and retailers in general have had a very good run over the last few weeks and investors are finding any excuse possible to take profits at the moment," said a trader at KBC Peel Hunt.

Second-quarter sales at Argos fell 1.4 percent, while underlying sales at Homebase increased 1.6 percent. Analysts were expecting like-for-like sales to fall 1.6 percent at Argos and by 2.5 percent at Homebase.

Gross margin was down by 125 basis points at Argos and by 400 basis points at Homebase.

At Argos a strong performance in televisions and personal computers offset weakness in the video gaming market. At Homebase sales were stimulated by promotions, with growth led by big ticket items, particularly kitchens.

Kesa said like-for-like sales increased 0.3 percent at Comet in the three months to July 31, well ahead of analysts' forecasts for a fall of up to 8 percent. They fell 3.7 percent at Darty, its French market leading business.

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"The peak season around Christmas is the key season for us. It's much too early to change forecasts and you can't extrapolate the first quarter through Christmas," Chief Executive Thierry Falque-Pierrotin told reporters.

Shares in Kesa, up 25 percent over the last quarter, were down 4.4 percent at 145.1 pence, valuing the business at 774 million pounds. (Additional reporting by Rhys Jones, Editing by Greg Mahlich and Simon Jessop)

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