A PRICE-cutting drive by DIY giant Homebase failed to prevent annual earnings at the chain falling below expectations.

Owner GUS said weakness in the home improvement market had deepened in recent months and its lower prices failed to generate the upturn in sales volumes it had hoped for.

GUS is now expecting Homebase to achieve underlying earnings of é50m from the financial year just completed, compared with the é65m forecast in the City and é110m achieved last year.

The sales update - covering the final six months of its financial year - showed 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 é10m to é820m for the year to March 31 2006 and warned it expected margins at Homebase to fall further.

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Merrill believed Homebase's like-for-like sales were 8 per cent lower in the final quarter of the period, after GUS said like-for-like sales dipped 5 per cent in the five months to the end of February.

The performance at Homebase mirrors the comments of B&Q owner Kingfisher, which has joined its rival in a period of heavy discounting.

Argos achieved a robust performance with new store openings pushing sales up by 9 per cent in the six months to March 31, although the figure without the additional space showed no change.

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.

While shoppers showed no appetite for DIY and decorating, GUS said Homebase still experienced strong demand for kitchens and furniture items.

Argos did well through consumer electronics, bedroom furniture, textiles and white goods.