Market Watch

THE mood of the high street will be tested this week when WH Smith and Home Retail Group (HRG) – which owns Argos and Homebase – post trading updates.

HRG provides an update on first-quarter trading at its Argos and Homebase brands on Thursday. The group has already given a cautious outlook for the new financial year, saying when it announced annual figures in April that it was braced for a difficult 2010 for the retail industry.

This came despite a performance for the past financial year that was better than it originally expected, with the group having raised forecasts twice. It reported annual profits of 293 million for the year to 27 February, down 11 per cent on the previous year.

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Sales across its Argos and DIY chain Homebase rose 2 per cent over the year. This was driven by its 349-strong Homebase chain, which delivered its strongest sales performance for five years – up 2.7 per cent like-for-like against a 10.2 per cent fall the year before.

Argos had a tougher year, with sales down 2.1 per cent as supermarkets increasingly encroached on its space and due to competition from the likes of online giant Amazon. This remains a concern for analysts, who are also worried about the impact of Government belt-tightening and tax hikes, with any VAT rise potentially spelling bad news for Home Retail.

Retailer WH Smith will reveal whether it took a hit from the recent volcanic ash cloud flights chaos when it reports back on trading since the half year on Tuesday.

The group has nearly 500 outlets in airports, train stations and at motorway service stations and is expected to have seen some sales impact from the ash cloud crisis.

It said on releasing interim results in April that third-quarter sales may be dented, but added that profits were unlikely to be hit.

The group said it had worked hard to keep costs down following the closure of airports in a bid to limit the financial impact.

Its travel-related division has become increasingly important to WH Smith, helping drive a 2 per cent hike in half-year profits.

Earnings in the travel arm rose 15 per cent to 23m, with cost savings and better margins seeing it overcome continued pressure on air passenger numbers.

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The result of the latest FTSE reshuffle will be announced on Wednesday amid expectations for yet more overseas companies to join the blue-chip ranks.

Indian power, oil and gas group Essar is likely to join the top tier after its initial public offering last month – the biggest flotation in London for two years. It raised 1.2 billion by selling just 23.2 per cent of the company for 420p a share, which is thought to have comfortably earned it a place in the benchmark index.

Essar is expected to be joined by Tanzania-focused gold producer African Barrick Gold in making a FTSE 100 debut.

Any changes from the annual review will be made after the market close on 18 June.