Home Retail full-year sales and profits up as Argos eyes new formats

Argos benchmark operating profit increased by 12% to £112.3m. Like-for-like sales were up 3.3% and total sales increased 3% to £4.05bn.

The retailer said that next year it will trial a new, smaller format in London. In addition, it will open Argos shop-in-shops in Homebase stores as its new hub and spoke distribution model allows it to consider different store formats that could hold little or no stock. It will also open a further 25 digital concept stores next year after “encouraging” feedback in its six trial stores.

Home Retail’s benchmark pretax profit was up 27% to £115.4m in the 52 weeks to March 1. Sales increased 3% to £5.66bn.

Argos gross margins were down by about 50 basis points driven by an adverse sales mix impact as sales of “margin dilutive electrical products” grew.  Adverse movement in the US exchange rate and sea freight costs also impacted margin. However this was partially offset by a reduction of stock clearance activity.

Argos said sales were driven in particular by electrical products including tablets, televisions, white goods and video game systems. It said growth in these categories “more than offset small sales declines in furniture, homewares and jewellery”. Online sales now account for 44% of Argos’ total sales. Within that, sales through mobile devices jumped 89% to account for 18% of total sales.

Homebase benchmark operating profit surged 71% to £18.9m. Like-for-like sales increased by 5.9% while total sales were up 4.1% to £1,489m. 

Sales of big-ticket products were up as Homebase invested in the category. Seasonal products also achieved good growth during the second quarter, “which benefited from favourable weather conditions”, Home Retail said.

Homebase gross margins were down by about 100 basis points, “principally driven by an adverse impact from promotional sales in the first quarter and an adverse sales mix impact resulting from the strong performance of margin dilutive seasonal and big ticket products”.

Home Retail said “multichannel is an important part of the Homebase strategy” and as such it will relaunch its website in 2015, “providing exciting new developments such as improved search functionality, registration and login and a much quicker and simpler buying experience”. In the year Homebase multichannel sales jumped 53% and now represent about 7% of overall turnover.

Home Retail chief executive John Walden, revealing his first set of results after succeeding Terry Duddy earlier this year, said its portfolio of 1,057 stores remains a “core component of its multichannel offer”. “The Argos national store network, with 734 stores that are smaller and more efficient than traditional stores, is a potential strategic advantage in a digital future,” he said.

Walden added: “The Group has made good progress so far with its strategic plans, which its financial performance has begun to reflect. 

“However, the plans are multi-year and they are early in their development. Many of the important systems capabilities, new customer propositions and increased financial expectations lie ahead, and the Group cannot count on external factors to drive the business forward. The Group has a strong financial position, which will enable it to invest in the Argos Transformation plan to reinvent it as a digital retail leader, and in the Homebase Renewal plan. Overall the Group is well positioned for the future.”

However Walden remained cautious on the economic outlook. He said: “Although there are signs that economic conditions are beginning to improve, with recent reports of reductions in inflation, increases in employment and growing levels of consumer confidence, the Group will continue to assume a subdued consumer environment until the recovery is more broadly based.” 

Argos is to pilot an enhanced home delivery offer, with time slots available for next day delivery on bulky goods. It will also trial a same day delivery offer on smaller items.  Argos said it will also revamp the online check-out process to accommodate flexible payment options, improve search functions and make it easier for customers to find their product by showing real-time stock availability by location. 

The retailer also intends to further personalise the shopping experience on its digital channels, “which will improve its ability to offer relevant products and promotions to customers”.