Home Retail on track to meet year profit forecasts

Thursday 12 June 2014 12.46
Q1 sales at Argos up 4.9%, Home Retail reports
Q1 sales at Argos up 4.9%, Home Retail reports

Home Retail has claimed vindication for a decision not to reduce its extensive Argos chain.

It said today that the chain was proving a lucrative asset as shoppers increasingly opt to order online then collect goods from stores. 

During the economic downturn, Argos' store portfolio was seen by some analysts and investors as a structural, and potentially fatal, weakness as more spending moves to the Internet. 

But as the popularity of "click and collect", or what the company calls check and reserve, has grown, its estate is now seen as a competitive advantage. 

Click and collect - which means customers do not have to wait at home for a delivery - represented 29% of total Argos sales of £868m in the 13 weeks to May 31, Home Retail's fiscal first quarter, the company said. 

Overall internet sales were 42% of total sales. 

Sales at Argos stores open for more than a year rose 4.9% compared with the year before, the company said, ahead of analysts' average forecast of 3.7% and an eighth consecutive quarterly rise. 

The sales were driven by demand for garden furniture and outdoor toys on the back of better weather than last year, as well as sales of video games and TVs ahead of the soccer World Cup. 

After tough trading during the recession, with underlying pretax profit sliding to £91m in fiscal 2013 from £433m five years before, Home Retail began implementing a turnaround plan last year aimed at pushing Argos sales up 15% to £4.5 billion pounds by 2018.

Argos, which contributes around 70% of group revenue, is being reinvented from a catalogue firm - where items are selected from a laminated catalogue in stores - to a digitally-led business, targeting more sales from tablet PCs and mobile phones.

Argos is improving its order retrieval systems and speeding up collections and Home Retail is also trialing Argos-branded outlets within its 322-store Homebase home improvement chain, where business is benefiting from increased activity in the housing market.

Home Retail said that like-for-like sales at Homebase grew 7.9%, helped by strong demand for barbecues and plants and big-ticket items such as kitchens.

Home Retail said it was on track to meet market expectations for underlying pretax profit of £129m in 2014-15, up from £115.4m the year before. 

However, the group cautioned that it faces tougher comparative numbers through the remainder of the year, particularly given Homebase's like-for-like sales in the second quarter of 2013-14 had soared 11%.

"Unless we either repeat the record-breaking summer (weather) of last year, or England make it to the World Cup final, it's unlikely that Homebase will report a positive like-for-like sales performance in the second quarter," chief executive John Walden said.