Home Retail, the UK's largest household goods retailer, has posted a higher-than-expected annual profit, but warned that the retail market is likely to remain challenging over the forthcoming year.
In a statement the company revealed that profit before tax goodwill and one-off items was up 13 per cent in 2006, to £376.7 million.
The preliminary results also showed that overall group sales were up six per cent to £5.85 billion in the year to March 3rd.
But despite reporting a 2.4 per cent rise in like-for-like sales for its Argos catalogue business, like-for-like sales were down 1.4 per cent at Homebase, with a "weak" performance across the chain's core DIY and decorating ranges contributing to the disappointing result.
Despite being upbeat about its overall performance, Home Retail said that it remained "cautious" about its outlook and expected the forthcoming financial year to be as "challenging" as the last.
The company said that conditions at Argos were likely to become "tougher" given the positive impact that the World Cup had made on last year's sales.
However Home Retail chief executive Terry Duddy insisted that both Argos and Homebase had performed "well" and said that the businesses were expected to make further progress despite difficult market conditions.
"The combination of a strong operational performance, together with a clear strategy for growth, means we are well positioned and confident of making further progress in what we expect to be another challenging year for UK consumer spending," he said in a statement.
Nonetheless, Mr Duddy also admitted to reporters that a further rise in interest rates was unlikely to have a positive impact on consumer spending.
His comments come amid growing expectations that the Bank of England will act to raise the base rate of borrowing further in a bid to control spiraling inflation, after new figures were published yesterday showing that retail sales reached a three-year high in April.
The Confederation of British Industry (CBI) said that warm weather and a late Easter this year had prompted the rise.