21st Oct 2015 10:21
LONDON (Alliance News) - Home Retail Group PLC on Wednesday reported a rise in profit in the first half of its financial year, but said full-year benchmark pretax profit will be below the lower end of current guidance due to trading uncertainty and increased investment in its Fast Track collection and delivery service.
Shares in Home Retail were down 15% at 128.00 pence Wednesday morning, making it the worst performer in the FTSE 250.
The owner of the Argos electronics and general merchandise chain and the Homebase DIY chain said pretax profit in the six months ended August 29 grew to GBP23.4 million from GBP13.5 million in the same period the year before, as it booked lower costs associated with exceptional items than in the prior year half.
Benchmark pretax profit, which excludes amortisation of acquisition intangibles, store impairment and onerous lease charges, exceptional items and various other costs, increased 10% to GBP34.1 million from GBP30.9 million, as a GBP6.5 million rise in operating profit at Homebase offset a GBP5.6 million decline for Argos.
However, total sales fell 2% to GBP2.63 billion from GBP2.68 billion, as Argos was hit by declines in both electrical and seasonal product categories while Homebase delivered like-for-like sales growth.
Total Argos sales fell 1.5% in the period, as like-for-like sales declined 3.4%, which Home Retail said was largely due to poor sales of TVs, tablets and white goods, while benchmark operating profit decreased to GBP6.4 million from GBP12.0 million.
Meanwhile, total Homebase sales fell 2.2%, but like-for-likes rose 5.6%. Growth was broadly across all product categories, but particularly driven by big ticket kitchen, bathroom and furniture products. Benchmark operating profit grew to GBP34.3 million from GBP27.8 million.
Home Retail added that its Argos Transformation Plan and Homebase Productivity Plan made further progress in the half year.
Under the Argos plan, it opened 86 digital concessions, bringing the total number of digital stores to 148. Of these new digital concessions, 76 were opened within Homebase stores and 10 within supermarkets of J Sainsbury PLC.
"Overall, the investment in digital format stores to date is on track to deliver a good return on investment, and Argos remains on target to complete a cumulative total of 200 digital format stores by the end of financial 2016," Home Retail said.
Argos also completed the launch of its Fast Track collection and delivery services in the half year.
"Argos is investing significantly in the launch of Fast Track and although the rate of customer take-up cannot be certain, we are confident that customers will increasingly embrace this market leading service over time," Chief Executive John Walden said in a statement.
Under the Homebase plan, Home Retail closed 25 stores, reducing the store estate to 271. It expects to close a further 10 stores in the second half of the year, aiming to reduce the store estate by a quarter from the 323 stores it had at the end of financial 2014.
In order to accelerate its infrastructure cost reduction programme, Homebase concluded a restructuring to reduce head office support costs, and it closed a distribution centre.
Home Retail maintained its interim dividend at 1.0 pence.
"We look forward to an improved sales performance for both Argos and the group in the second half. However, as I have previously stated, trading at Argos during this year's important Christmas season seems less predictable than usual, as both retailers and customers determine whether to repeat last year's unusual Black Friday patterns," Walden said.
"The combination of this trading uncertainty, an increased level of investment in the launch of Fast Track, and the underlying profit reduction from Argos' challenging first half, mean that at this stage of the financial year we expect the group's full-year benchmark profit before tax to be slightly below the bottom end of the current range of market expectations of GBP115 million to GBP140 million," he added.
Home Retail reported benchmark pretax profit of GBP132.1 million in the year to February 28, 2015.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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