Home Retail warns on profits after slow summer

Home Retail Group, the owner of Argos, warned that first-half profits will be 20 to 25 per cent lower than last year after a summer in which customers shied away from big-ticket purchases.

The catalogue retailer saw like-for-like sales – or revenue at stores open at least a year – fall 5 per cent in the first half, on soft demand for both furniture and video games.

The company also owns DIY retailer Homebase, which saw flat like-for-like sales. Trading at the two brands told a tale of two customers: where Argos – the bigger business – had trouble moving higher-priced items, Homebase’s strength lay in kitchens, bathrooms and bedrooms.

Terry Duddy, Home Retail chief executive, said the second quarter improved on the first at Argos “in spite of its market being more challenging”. But Nick Bubb at Arden Partners argued: “Customers are not as confident as, say, a John Lewis customer – but you are where you are. They say, take out furniture and we’re OK – but furniture is a big part of the business.”

Regional differences were not pronounced in the half, said Mr Duddy: “I’ve heard other retailers comment on the north-south divide. At this stage we’re not seeing the sort of big differences that would say that’s a clear trend.”

The company expects full-year pre-tax profits to be between £250m-£275m – at the lower end of market expectations. Capital expenditure should rise more than 50 per cent to about £150m, with a large percentage going towards store refurbishment. “We’re getting a great response from customers,” Mr Duddy said, but declined to compare performance at refreshed and old stores.

Shares, which fell 8.4p to 213p on Thursday, have been on a steady drift downward this year, with an occasional uplift on bid rumours.

The company is aiming to achieve a “cash neutral” position at the year-end, before taking into account an ongoing £150m share buy-back programme, more than two-thirds of which is complete. It intends to retain the dividend of 14.7p.

Source : Rose Jacobs - FT.com