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Argos sales fall 5.6% LFL in 2010


Home Retail Group (HRG), owner of Argos and Homebase, has reported falling sales across all of its operations in its end-of-year trading statement published today.

Its has now lowered its full-year profit-before-tax (PBT) estimate following like-for-like (LFL) sales at Argos and Homebase for the 52 weeks to February 26th falling 5.6 per cent and 0.3 per cent respectively.

Net cash in the business by the end of the financial year reduced by £155 million to £260 million, with net cash outflow around £5 million before the share buy-back programme of £150 million, which has just been completed, is considered.

Terry Duddy, CEO of HRG, said: “There are clear signs of further pressures on consumer spending, with recent trading conditions, particularly at Argos, proving to be more difficult and volatile than we anticipated.

“As a result, group benchmark PBT for the year just ended is now expected to be between £250 million and £255 million.”

Argos saw its gross margin drop 100 base points during the year but increased its net space contribution to sales by 2.1 per cent after six new stores were opened.

In the final eight-week period of the year margin at Argos dropped a further 150 base points due to increased clearance activity, while LFL sales declined 4.6 per cent.

This continued the poor performance in trade at the retailer over the Christmas period, when LFL sales fell 4.9 per cent.

Homebase saw a 3.8 per cent upturn in LFL sales during these two months however, and its margin improved 300 base points, driven by stock management and a reduction in promotional activity.

Analysts David Jeary & Katherinne Wynne from Investec Securities, commented: “Each one per cent cost base increase has a £20 million impact. We therefore believe FY12E consensus could fall by up to 20 per cent, ie nearer to £200 million from the current consensus of £250 million. This could also threaten the dividend in our view.”

Looking forward the company predicts low-to-mid single digit LFL sales decline at Argos and flat LFL trade at Homebase for this full-year and cost will be higher year-on-year at both as the group follows long-term growth initiatives.

Duddy added: “Against the backdrop of the challenging economic environment, and taking in to account our most recent trading, we are now planning with increased caution for the year ahead.

“The group has a strong financial position and we continue to focus on driving forward our operational performances while investing further across the businesses.”

Published on Thursday 10 March by Editorial Assistant

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