22nd Oct 2014 09:38
LONDON (Alliance News) - DIY and general merchandise retailer Home Retail Group PLC Wednesday outlined a three-year strategic plan for its Homebase business, which it said will improve, but shrink, its store estate and strengthen its offering both in-store and online to improve profitability.
Home Retail said the move to shrink Homebase was partly driven by "the rise of a generation less skilled in DIY projects". It also cited the growth of digital and multi-channel competitors.
Home Retail said it will reduce Homebase's store estate by 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.
It said it will close 80 Homebase stores in total - 30 by the end of this year, and 50 over the next couple of years. Homebase's store estate is in out-of-town retail parks.
"It's unlikely it will be equally balanced, but we hope we will make progress early. In general, it should be a bit balanced over this year and next two years, with a bit less in third year," Chief Executive John Walden told journalists Wednesday.
"Obviously there will be some job losses, but we are not going to quote a number...some will find roles elsewhere in the group," said Walden.
Home Retail's Finance Director Richard Ashton said Homebase makes most of its profit in the first half, but said "Argos makes around four times more of a profit in a year than Homebase".
Home Retail outlined its plans for the Homebase 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.
The group said the "three year productivity plan" for Homebase will go on until the end of the 2018 financial year.
Walden said the main objective is to "improve the productivity of its store estate, strengthen its propositions and accelerate its digital capabilities by leveraging Argos' investments".
"Homebase is a good business with the basis for future growth. This will position Homebase as a smaller but stronger business, ready for investment and growth," said Walden.
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.
"Consistency of store standards, consistency of customer service and pricing in certain categories are not as competitive as we would like it to be. I characterise them as opportunities, as opposed to problems," Walden told journalists.
Despite the acceleration of Homebase's store-closure programme, management made no changes to its guidance for capital expenditure for the current financial year, guiding for around GBP200 million.
News of the group's plans for its DIY business overshadowed its first-half earnings figures, which came in under analyst expectations.
Home Retail 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 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.
The company said growth is being supported 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 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 said this will depend on how Argos performs over Christmas.
"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.
Home Retail shares were amongst the biggest fallers on the FTSE 250 Wednesday morning, but have since recovered some of their early losses, trading 0.7% lower mid-morning at 174.40 pence.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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