29th Apr 2015 11:16
LONDON (Alliance News) - Home Retail Group PLC Wednesday reported higher profits for its recently-ended financial year, as like-for-like sales grew at both Argos and Homebase for a second consecutive year, and it said it would continue the revamp of both businesses in the current year as it warned of a difficult first half.
The owner of the Argos general merchandise chain and the Homebase DIY chain reported pretax profit excluding exceptional items and other non-operating items for the year ended February 28 of GBP132.1 million, up 14% from GBP115.4 million the year before. That was even better than it had flagged back in March, when it said it expected the so-called benchmark profit figure to be at the top end of market expectations of between GBP120 million and GBP132 million.
Pretax profit rose to GBP93.8 million from GBP71.2 million, as revenue rose 1% to GBP5.71 billion as growth at Argos offset a slight decline at Homebase, where it is shutting unprofitable stores. Still, like-for-like sales at Argos and Homebase grew 0.6% and 2.3%, respectively.
The company is revamping both its chains to try and catch up with changing trends in the UK retail sector. Argos, which traditionally sold its wide range of products from desks at the front of large warehouse-style stores, is increasingly moving online and opening online concessions in other retailers, while Homebase is closing unprofitable stores, refitting others and also trying to boost online sales in the face of stiff competition in a declining UK DIY market.
Home Retail's Argos Transformation Plan, which was introduced in 2012 after several years of weakened performance at the chain, is on track to "reinvent Argos as a digital retail leader", while the Homebase Productivity Plan established in October is also on track to meet its targets by the end of 2018, the company said.
During the year, Argos expanded the number of existing stores converted to its new digital format, and at year-end was trading from 60 digital stores across three different formats. In the current financial year, around 80 Argos digital concessions within Homebase and 10 within Sainsbury's are planned, on top of converting at least 50 existing Argos stores to digital formats.
Visits to Argos' digital channels increased by 23% to over GBP900 million during the year, and internet sales grew to represent 46% of total Argos sales, the group said.
"Overall, although the journey so far has been more challenging than originally envisioned, our team is adapting well and the end state of the group's technology infrastructure will be a unique advantage," the company said in a statement.
However, Home Retail warned that it will "continue to plan conservatively and assume only low levels of market-driven growth" in the face of an uncertain economic environment in 2015.
It said its sales performance in for the current year is likely to be more challenging in the first half, as Argos focuses on improving its technology and customer experiences, but said the second half should improve as it introduces Argos' new digital offers in time for peak trading.
Argos will face headwinds and modest declines in revenue year-on-year in the first half, and Homebase will also be up against difficult seasonal comparables, Chief Executive John Walden told journalists, although he doesn't expect Homebase to be affected to the same degree as Argos.
Under its Productivity Plan, Homebase closed 30 stores and opened three during the year, reducing the store estate to 296. It expects to close around 35 additional stores in the current year, with the intention of reducing the total number of Homebase stores by around 25% by the end of 2018.
It is selling the Battersea freehold site to a residential property developer for GBP57 million, meaning it expects the store closure programme to be cash positive at the end of the current financial year.
"I believe the strategic plans we are pursuing across the group will enable us to innovate and lead in a rapidly changing retail market," Walden said in a statement.
Home Retail will pay a final dividend of 2.8 pence, making for a payout of 3.8p for the full year, up 15% from the 3.3p paid the year before.
Shares in Home Retail were trading up 0.1% at 167.40 pence late Wednesday morning, having peaked at 175 pence at the open, before dropping to 164.50 pence.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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