* Profit down 13 percent to 254 million sterling vs forecast 252 million
* To expand into TV shopping channel, childrenswear, books
* Argos managing director steps down for personal reasons
* Dividend kept at 14.7 pence a share
* Shares up 3.9 percent, within European sector up 0.9 percent (Adds company, analyst comments, background, updates shares)
By Mark Potter
LONDON, April 20 (Reuters) - Home Retail, Britain's biggest household goods retailer, plans to expand into TV shopping, books and childrenswear as it battles a grim consumer outlook and stiff competition from grocers and online retailers.
The group, which runs catalogue-based Argos stores and the Homebase do-it-yourself chain, said on Wednesday it expected trading conditions to remain difficult for at least this year as shoppers struggle with rising prices, subdued wages growth, austerity measures and worry about higher interest rates.
However, its shares climbed over 5 percent in early trading after it met reduced forecasts with a 13 percent fall in annual profit and reiterated its sales forecasts for the coming year.
"They've not taken a step back, which in itself is a positive," said Peel Hunt analyst John Stevenson.
Home Retail boss Terry Duddy said the group also deserved to be reappraised after Tesco, Britain's biggest retailer, said on Tuesday its general merchandise sales were under pressure.
"If your best supermarket, who's supposed to be gaining market share against you, is actually performing slightly worse, you've got to get a reappraisal of the Argos performance," he told reporters on a conference call.
Home Retail said it would continue to invest to prepare for an eventual consumer recovery, with capital spending edging up to around 150 million pounds this financial year from 143 million the year before.
Initiatives at Argos include launching a new home shopping television channel in the summer, expanding in children's clothes and launching a trial with a third party to sell books, which could also be extended into other product categories.
The firm, Britain's second-biggest internet retailer, will also continue to invest in revamping stores and expanding its mobile shopping offering with new applications for Android mobile phone devices and the Apple iPad.
Some analysts remained sceptical whether the investments would do much to offset the challenge Argos faces from online retailers like Amazon and supermarket groups.
"Incremental business is always good, but it doesn't address the core threat," said Peel Hunt's Stevenson.
ANOTHER PROFIT FALL
Profit before tax and one-off items fell to 254 million pounds ($415 million) in the year ended Feb. 26, in line with reduced forecasts following a profit warning last month.
Sales dipped 3 percent to 5.85 billion pounds.
While a string of British retailers have issued profit warnings in recent months, Home Retail has been particularly hard hit as its predominantly low income customers are suffering the most severe squeeze on their budgets.
Analysts expect underlying profit for 2011-12 to fall to around 210 million pounds, according to Thomson Reuters I/B/E/S.
Home Retail reiterated forecasts made last month that it expects a low-to-mid single digit percentage fall in like-for-like sales at Argos this financial year, along with a broadly flat outcome at Homebase.
It added costs would rise a little at both businesses, driven by higher input prices and its investments.
Home Retail also said Argos boss Sara Weller was standing down for personal reasons. Duddy will take on her responsibilities until a successor is found.
The group has net cash of 259 million pounds and kept its full-year dividend at 14.7 pence a share.
At 0837 GMT, Home Retail shares were up 3.9 percent at 217.5 pence, valuing the business at about 1.8 billion pounds. The stock has lagged the STOXX 600 European retail index by 25 percent over the past year. (Editing by Paul Sandle and Mike Nesbit) ($1=.6117 Pound)