Home Retail Group Profits Slump as Argos sales slide
Written by MCM News Desk    Wednesday, 20 October 2010 08:55    PDF Print E-mail

Home Retail today posted an expected 23% fall in first-half profit as low-income shoppers trimmed their spending. A slump in sales at Argos, the catalogue retailer, depressed first-half profits at Home Retail Group, with gross margins also contracting across the company.
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However, sales at DIY chain Homebase, the group’s other main retail brand, fell less sharply thanks to growth in its bathroom and kitchen installation services. Home Retail also made progress in reducing operational and distribution costs.

“Homebase has completed another good performance in its peak trading period,” Terry Duddy, chief executive of Home Retail, said in a statement on Wednesday.

“At Argos, its core customers have been under greater pressure and there were some particularly challenging conditions in certain product categories as Tesco and ASDA's catalogues erode market share.

The results were in line with market expectations and shares in Home Retail Group slipped 0.8 per cent or 1.8p to 218.1p in early trading on Wednesday.

Argos, which accounts for two-thirds of Home Retail’s turnover, saw like-for-like sales tumble 6.5 per cent in the six months ending in August, compared with the same period in 2009. Sales of video game equipment and big-ticket items such as furniture were especially poor. In spite of a small boost from the football World Cup in the second quarter, sales of televisions in the six month period were also below that of last year.

Gross margins fell by 150 basis points, 125 points of which were due to currency fluctuations and higher shipping costs and the remainder to promotional activity, mostly on televisions in the run-up to the World Cup. However, operating and distribution costs were reduced by £25m or roughly 5 per cent.

Homebase, which accounts for almost a third of group revenues, saw like-for-like sales fall only 0.8 per cent. The chain was boosted by higher sales of garden furniture and barbecues, and continued growth in kitchen and bathroom installations. Gross margins fell 100 basis points due to currency fluctuations and shipping costs, but Homebase made £10m or 3 per cent of efficiencies in distribution and operational costs.

Across the group, pre-tax profits fell 12 per cent to £103m in the six months ending in August on revenues that slid 3 per cent to £2.7bn. So-called benchmark operating profit, which strips out impairments and other charges, fell 23 per cent across the group to £93m, in line with Home Retail’s earlier predictions of a fall for the half year of between 20 and 25 per cent.

 

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