Argos sales slide hurts Home Retail Group

A drop in sales at Argos, the catalogue retailer, depressed first-half profits at Home Retail Group, with gross margins contracting across the company.

However, sales at DIY chain Homebase, the group’s other main retail brand, held up better thanks to growth in its bathroom and kitchen installation services. Home Retail also made progress in cutting operational and distribution costs.

Terry Duddy, chief executive, acknowledged that the typical lower-income customer of Argos was particularly affected by the recession, but said he did not anticipate a further deterioration in trading at the chain.

“Our core customer has been in this cautious period for a while, they haven’t really got out of the recession in that sense,” he said. “Although we’re cautious in our outlook, we don’t see things being terribly worse.”

Argos, which accounts for two-thirds of Home Retail’s turnover, saw like-for-like sales tumble 6.5 per cent in the six months to August 28 compared with the same period in 2009.

Sales of video game equipment and big-ticket items such as furniture were especially poor, and the average transaction value at Argos remained relatively low at £25.

Homebase, which accounts for almost a third of group revenues, saw like-for-like sales fall only 0.8 per cent. The chain was boosted by higher sales of garden furniture and barbecues, and continued growth in kitchen and bathroom installations.

Across the group, pre-tax profits fell 12 per cent from £117m to £103m in the six months to August 28 on revenues that slid 3 per cent from £2.8bn to £2.7bn. Earnings per share fell from 9p to 8.8p. The interim dividend is held at 4.7p.

Group-wide gross margins slid 6 per cent to £1bn as a result of promotions, currency effects and shipping costs, but operating and distribution costs were cut by 4 per cent to £947m.

Source : John O'Doherty - FT.com