Home Retail to exceed profit expectations as Argos and Homebase sales rise

It was the last update from Home Retail chief executive Terry Duddy, who steps down on Friday and is succeeded by Argos boss John Walden.

Home Retail Group, which owns both Argos and Homebase, revealed that like-for-like sales across Argos grew 5.2%, while Homebase like-for-likes surged 9.3% in the period.

Argos sales rose to £526m in the eight weeks to March 1 and increased 3% to £4bn in the year to March 1, while like-for-likes for the year increased 3.3%. Four stores closed in the period to take its store estate to 734.

Home Retail said Argos sales were driven by electricals with sales across video gaming, TVs, white good and small domestic appliances. Sales across other product categories were broadly flat year on year, while jewellery recorded a small fall.

However, Argos reported a decline in tablet sales for the first time since it started selling the devices three years ago, which finance director Richard Ashton said was “not really a great surprise”. He said volumes held up but sales fell by a “couple of percentage points” as shoppers opted for lower priced devises rather than the more expensive iPads. He also said Argos was facing “very strong” comparables with last year.

In the eight-week period online sales represented 44% of total sales, up from 42% last year. Mobile commerce sales surged 89% to represent 18% of total Argos sales.

Ashton added that Argos’ new digital format shops, opened in December, were trading in line with the rest of the portfolio. “It will take a bit of time for customers to get used to [the new format],” said Ashton.

Home Retail said the gross margin rate was unchanged year on year as “the continued adverse sales mix impact and the anticipated impact of adverse currency and shipping costs being offset by a number of small positive items”.

Homebase sales grew 6.9% to £203m driven by growth in big-ticket items. Gross margins declined 75 basis points, affected by promotions within big ticket.

Duddy said: “The positive sales performance in the last few weeks of our financial year concludes a good year for both Argos and Homebase, with both businesses having delivered like-for-like sales growth throughout the year. As a result of this recent trading performance, we now expect group benchmark profit before tax to be slightly ahead of the top end of the current range of market expectations of £107m to £111m. The cash outflow for the year will also be slightly better than previous guidance, resulting in a closing net cash position of around £330m.

“We have made good progress with the investment plans in both businesses during the current financial year and we have a clear agenda for growth. However, although there are signs that economic conditions may be beginning to improve, we will continue to plan for a subdued consumer environment.”

Duddy, who has led the group for 15 years, told Retail Week his tenure had been “terrifically exciting” and that he was “very sorry to be leaving”. He added he felt he was leaving Home Retail in good shape, with a clear plan and strong management team.

He said that he had no immediate plans to take up another position. “I’ll have a little breather and decide what I want to do,” he said.