Home Retail Group Q2 trading update

Home Retail Group, the UK’s leading home and general merchandise retailer, today updates on the trading of its second financial quarter covering the 13 weeks to 30 August 2014.

Argos:

Total sales at Argos grew by 1.4% to £901m. Net new space contributed 0.2% as we added a net 13 stores in the quarter as part of previously announced trials, including nine Argos concessions within Homebase stores and four small format stores. The Argos portfolio now comprises 747 stores.

Like-for-like sales increased by 1.2% in the quarter. Growth was driven by increased sales
of electrical products as a whole, principally as a result of strong sales performances in TV’s, video gaming and white goods, partially offset by a further decline in tablets. These
increased sales more than offset small sales declines in furniture, homewares and jewellery.

Sales via the internet grew in line with total sales in the quarter and represented 44% of total Argos sales. Within this, mobile commerce grew by 36% and represented 22% of total Argos sales.

The approximate 25 basis point gross margin improvement was driven by a reduced level of
promotional sales together with a number of other small positive items, partially offset by an adverse sales mix impact from the growth in margin dilutive electrical products.

Homebase:

Total sales at Homebase declined by 2.8% to £390m due principally to a reduction in net
space of 2.9% as a result of a net six store closures in the quarter, which results in a total of seven closures in the first half. The Homebase portfolio has therefore reduced to 316 stores.

Like-for-like sales increased by 0.1% in the quarter. There was growth in sales of big ticket products, offset by a decline in sales of seasonal products following the very strong performance in this category in the same period last year. Sales in the remaining product categories were slightly up.

The approximate 75 basis point gross margin reduction was driven by the adverse impact of
stock clearance activity in respect of the store closures, together with an adverse sales mix impact from the growth in margin dilutive big ticket products.

John Walden, Chief Executive of Home Retail Group, commented:

“The Group has had a good first half. Argos delivered its ninth consecutive quarter of
positive like-for-like sales growth in the second quarter. For the first time in many years, this sales growth was supported by an improved gross margin performance.

“Homebase performed well over its peak trading period, following up its good performance in the first quarter with broadly flat like-for-like sales in the second quarter. This is especially pleasing given that we achieved this against a strong 11% like-for-like in the same period last year.

“At this halfway point of the financial year we expect to deliver full-year Group benchmark
profit in line with current market expectations, however, as always the full-year outcome will depend upon Argos’ Christmas trading period.

“We remain cautiously optimistic about the broader economic environment. Key economic
indicators seem to be improving, however retail spending in general has been inconsistent
across both product categories and geographies, suggesting that there is not yet a sustainable, broad-based consumer recovery.”

Source : Home Retail Group
www.homeretailgroup.com