22nd Oct 2014 06:58
LONDON (Alliance News) - DIY and general merchandise retailer Home Retail Group PLC Wednesday said its Homebase business will pursue a three-year productivity plan to improve, but shrink, its store estate and strengthen its offering both in-store and online.
Home Retail said the plan will accelerate the reduction in the number of Homebase stores by about 25% by the end of the 2018 financial year, from 323 at the end of the 2014 financial year, through scheduled lease expirations and a series of property exit transactions. "The result should be a more efficient and productive estate that can support future investments," the company said.
Home Retail, which operates both Argos and Homebase, outlined its plans for its DIY business as it reported further like-for-like sales growth at both businesses in the first half of the year, driving a 3% increase in group revenue to GBP2.67 billion from GBP2.60 billion a year before.
"In April, I set out my near-term priorities for the group, which included undertaking a comprehensive review of group strategy and its priorities going forward, in particular as they relate to Homebase," said Chief Executive John Walden in a statement.
"Homebase is a good business with the basis for future growth. In this context, Homebase will pursue a three-year plan through to the end of the 2018 financial year to improve the productivity of its store estate, strengthen its propositions and accelerate its digital capabilities by leveraging Argos' investments. This will position Homebase as a smaller but stronger business, ready for investment and growth," Walden added.
Home Retail said the review of its Homebase business identified several challenges facing the business. During the first half, it continued to exit underperforming Homebase stores and reduce the size of the store estate.
"The review identified that Homebase faces several challenges, including inconsistent store operating standards and a large estate with low sales densities that result in a challenged financial model. These factors are currently limiting Homebase's operational efficiency and constraining the success of a more aggressive store investment programme," the company said.
The group reported a pretax profit of GBP13.5 million for the 26 weeks to August 30, compared with GBP14.2 million the prior year. Like-for-like sales were up 2.9% at Argos in the period, and up 4.1% at Homebase.
However benchmark profit, a figure closely watched by analysts and investors, increased by 13% to GBP30.9 million, up from GBP27.4 million a year earlier.
Home Retail's benchmark pretax profit strips out costs such as amortisation of intangibles, store impairment charges and exceptional items.
Analysts consensus was for a first-half group benchmark pretax profit of GBP34.6 million.
Home Retail maintained its interim dividend at 1.0 pence per share, but said growth is being buoyed by continued progress in Argos? turnaround strategy and an improvement in Homebase?s profitability coming from self-help measures and market share gains.
"Argos continued to build on its sales growth from the previous financial year, increased its benchmark operating profit whilst also making good progress with its transformation plan. Homebase delivered a good peak trading period, performing well throughout the half despite being up against the tough comparators of a strong second quarter last year," Walden said.
Last month, Home Retail reported a ninth consecutive quarter of like-for-like sales growth for Argos, this time supported by margin growth, but tepid growth at its Homebase DIY unit as sales of seasonal goods fell short of last year.
At the time, it said it was expecting to report a "benchmark" profit in line with market expectations for the full year, in the range of GBP122 million and GBP135 million, although, as always, it will depend on how Argos performs over the key Christmas trading period.
"At this mid-way point in our financial year, we continue to expect to deliver full-year benchmark profit before tax in line with current market expectations, however, as always the full-year outcome will depend upon the important Argos Christmas trading period," said Walden in Wednesday's statement.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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