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Argos profits decline 18% in last year


Home Retail Group (HRG), owner of Argos and Homebase, has seen sales fall three per cent over the last year, according to results published today.

Argos was the worst performing half of the business in the 52 weeks to February 26th 2011, with like-for-like (LFL) sales falling 5.6 per cent year-on-year leading to a 18 per cent drop in benchmark operating profit.

Homebase sales reduced by 0.3 per cent LFL during the year but the retailer managed to increase profits by 16 per cent thanks to stable gross margin and a 15.6 per cent increase in selling space.

Oliver Stocken, Chairman of HRG, commented: “Economic uncertainty and a low level of consumer confidence continue to adversely impact customer spending patterns.

“Despite these challenges the group continues to build on its strategic advantages to ensure that it will be well positioned for the economic recovery over the longer term.”

Total group profit-before-tax for the year has been reported as falling 13 per cent to £254 million but HRG remains in a strong net cash position with £259 million.

Cash gross margin across the group was down four per cent during the 12 months to £2,177 million, due to gross margin being down by 100 base points at Argos.

Neil Saunders, Consulting Director at Verdict Research, argues that HRG is suffering due to the overall UK economic situation which has seen demand for homewares plummet and points out that Argos is coming under increasing competition from the supermarkets.

“Both sides of the HRG business are very exposed to retails sectors which are currently shrinking, so it is not entirely surprising that sales should have slipped, “Saunders said.

“What both businesses need is a much better economic environment which can support the growth of home related goods. That prospect remains someway off, meaning that we are likely to see continued sales slips for the remainder of 2011.”

Operating and distribution costs were reduced by £60 million to £1.93 billion during the period, an improvement of three per cent, and the company is still confident enough to maintain a full-year dividend of 14.7p per share.

The group also announced this morning the standing down of Sara Weller as Argos Managing Director and Group CEO Terry Duddy will take temporary control of the retailer’s operations until a replacement is hired.

Duddy added: “Our focus on operational excellence and further investment in our multichannel leadership has delivered a solid performance and enabled us to gain or hold market share in our businesses.

“Although we remain cautious about the consumer outlook over the short term we will continue to invest and innovate in our customer proposition and use our competitive advantage to provide customers with the best value and widest choice in home and general merchandise.”

Published on Wednesday 20 April by Editorial Assistant

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