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Home Retail uncertain on profits as it prepares for the holiday season

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Uncertainty over the key Christmas trading period, which includes Black Friday, has forced Home Retail Group to caution that this year’s profits are unlikely to meet city analysts’ expectations.

In its first-half results (to 30 August) the Group, which owns Homebase and Argos, said that while the DIY and homewares chain recorded sales growth, profits and sales at Argos were hurt by declines in electrical and seasonal product categories.

What’s interesting is that Home Retail has been reducing the infrastructure costs at Homebase and closing unprofitable stores left, right and centre – 25 in those six months alone. In contrast, Argos has received heavy investment in a digital overhaul, having recently launched a same-day delivery service that some say rivals Amazon. When John Walden became Chief Exec in March last year, he outlined intent to close a quarter of Homebase stores by 2018 in an attempt to digitise the company.

In the same period as the Homebase closures, Argos has rolled out 86 digital concession stores which has caused digital sales to account for around 45% of the total.

"We look forward to an improved sales performance for both Argos and the Group in the second half,” said Walden who also warned that “trading at Argos during this year’s important Christmas season seems less predictable than usual, as both retailers and customers determine whether to repeat last year’s unusual Black Friday patterns.

The combination of this trading uncertainty, an increased level of investment in the launch of Fast Track and the underlying profit reduction from Argos’ challenging first half, mean that at this stage of the financial year we expect the group’s full-year benchmark profit before tax to be slightly below the bottom end of the current range of market expectations of £115m to £140m."

 

Published on Wednesday 21 October by Veebs Sabharwal

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