Argos sales news cheers, but long-term view remains poor

By Dominic jeff
Published on 20/06/2012 01:18

SHARES in Home Retail Group (HRG) soared by nearly a quarter yesterday after it revealed that the bad weather and recession had not affected its Homebase and Argos stores as badly as many investors had feared.

Britain’s biggest household goods retailer said trading had been volatile in the 13 weeks to 2 June, but a 0.2 per cent dip in like-for-like sales at Argos was better than expected, as the chain has been suffering in the difficult consumer environment of recent years.

The effect of increased sales space meant total sales were up 0.4 per cent at £819 million.

Homebase, which relies on seasonal products for nearly half its sales, took a hit from the run of poor weather. The firm said sales of “big ticket” items were also down in a market that “continues to be challenging”.

Sales declined by 8.1 per cent, or 8.3 per cent on a like-for-like basis, to £421m.

Chief executive Terry Duddy said: “Over a particularly volatile trading period, Argos had a solid start to the year … while at Homebase the poor weather conditions adversely impacted seasonal product sales.”

He said the firm was “comfortable” with current market expectations for full-year profits, but he said it was too early to predict a return to like-for-like growth in the second quarter and that he was continuing to plan cautiously.

But Duddy said he was hopeful of “a bit of a feel-good factor” coming through from the Euro 2012 football championships and the London Olympics.

Last month, HRG revealed a 60 per cent plunge in full-year profits and hinted that it may use upcoming lease renewals to close less profitable stores.

American John Walden started as Argos’ managing director in February and has been given free rein to examine all options for the business. He will update the market in October.

Despite the cheer from the market, analysts remain concerned that Argos has no clear way of reversing the long-term decline in sales.

Freddie George, retail analyst at Seymour Pierce, said that, although the figures would be seen as a positive, he remained concerned that Argos’ decline was set to continue.

Noting that like-for-like sales in Argos’ financial first quarter had dropped by almost 20 per cent over the past three years, he said: “There appears to be little loyalty from customers and there is growing competition from the specialists and food retail multiples with the company’s core categories.

“There is little in the current strategy that in our view will arrest the current five-year decline in Argos’ profits. We still believe the company will be forced into a restructuring programme reducing the number of stores, which could impact the company’s strong balance sheet.”