12th Mar 2015 13:28
LONDON (Alliance News) - Home Retail Group PLC Thursday said it expects its benchmark pretax profit in the recently-ended financial year to be at the top end of current market expectations, after sales in the last eight weeks of the year fell but it said it had made progress on gross margin and costs, but it also warned that sales at Argos are set to be pressured by lower demand for TVs, video game consoles and tablets in the short-term.
The owner of the Argos general merchandise chain and the Homebase DIY chain has spent a number of years turning around the Argos business and that was paying off, but it is now being hampered by efforts to also shrink and turnaround the Homebase business.
The company said Argos sales in the eight weeks to the end of the financial year on February 28 were down 4.0% at GBP505 million, bringing the total for the year to GBP4.10 billion, up 1.1%. However, like-for-like sales dropped 5.0% in the final weeks, hit by strong figures a year earlier and lower demand for some consumer electricals, meaning the like-for-like growth for the year was just 0.6%.
Sales declines in tablets continued throughout the year and the fourth quarter was hit by declines in video gaming and TVs, Finance Director Richard Ashton told reporters. This had a particular impact given that the sector had performed strongly a year earlier.
"We would expect it to remain weaker for the foreseeable future and that will have a bit of a drag on the sales momentum of Argos through the beginning of the new financial year," Ashton said.
"We have decided to moderate our pace of change in the near future and focus more intensely on our customer experiences. We believe this is the right direction for our customers, but it may, particularly when combined with likely ongoing sales declines from certain electrical product cycles, have an impact on the like-for-like sales momentum in Argos in the next couple of quarters," Ashton added.
Home Retail shares were trading 10.0% lower at 175.90 pence Thursday afternoon, one of the worst-performing stocks on the FTSE 250.
However, the retailer did continue to make progress on margins. Gross margin at Argos was up about 100 basis points in the last eight weeks of the year, compared with a rise of about 25 basis points for the year as a whole.
Sales at Homebase in the final two months were down 3.8% at GBP193 million, as that chain also faced strong comparatives and it also traded from fewer stores. Sales for the year as a whole fell 3.0% to GBP1.48 billion. Like-for-like sales were down 0.9% in the final two months, meaning the annual growth was restricted to 2.3%.
"There were 30 store closures and three store openings in the year, reducing the store portfolio by 27 stores to 296, a reduction that is ahead of our previous guidance for the current financial year and which is part of the previously announced Productivity Plan," Home Retail said in a statement.
Gross margin at Homebase was down about 225 basis points in the final two months, and was down 100 basis points for the year as a whole, mainly due to the extra stock it is trying to sell off at clearance rates due to the store closures.
Still, the better-than-expected margin performance overall in the final eight weeks, means the company is expecting its benchmark pretax profit, which excludes items including store impairments, onerous lease charges and exceptional items, to be at the top end of current market expectations for the year to February 28, which it said are set between GBP120 million and GBP132 million.
Benchmark pretax profit in the previous financial year was GBP91 million, down 10% from the year before that.
"We remain on track to deliver our investment plans in both businesses over the next three years to full year 2018," Ashton said.
By Karolina Kaminska; [email protected]
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