In its half-year financial update issued today, Home Retail Group, owner of retail brands including Argos and Homebase, admits to as "mixed" performance, and faces "uncertainty" ahead, which will likely lead to profits at the lower end of expectations.
The results, covering the 26 weeks to 29th August 2015, saw significant development at Argos, completed development and testing of its new digital propositions – Fast Track Collection and Fast Track Delivery – and launched these early in the second half. Argos opened 86 digital concessions, bringing its digital store total to 148. Internet penetration accounted for 45% of total sales, including mobile commerce which grew 13% to represent 25% of total sales.
A further 25 Homebase store closures were completed, and the retailer's infrastructure cost reduction programme accelerated. Digital sales grew by 43% to account for 10% of total sales.
John Walden, chief executive of Home Retail Group, says: "While group benchmark profit before tax increased slightly during the first half, performance overall was mixed. Homebase delivered a good first half, with like-for-like sales growth and an improvement in operating profit. It also made good progress with its Productivity Plan and the store closure plan in particular, which helped Homebase to achieve further cost reductions.
"Argos’ first-half sales and profit were negatively impacted by declines in both electrical and seasonal product categories. Argos continued to make good progress with its Transformation Plan, delivering strongly against its digital store opening programme. Argos also substantially completed the technology and operational steps necessary to launch Fast Track – its new home delivery and store collection propositions. 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.
“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. 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 £115m to £140m.”
Overall group sales were down 2% to £2629m cash gross margin was down 1% to £973m, but ooperating and distribution costs decreased by £10m to £941m – Homebase costs decreased by £26m, Argos costs increased by £14m.