Home Retail has stablished like-for-like sales at Argos but as Homebase remains challenging, analysts are concerned that the retailer group’s issues are structural rather than cyclical.
“Today’s update shows Argos like-for-likes have continued to stabilise whilst trading at Homebase remains challenging. Management continue to plan cautiously for the year ahead and indicate that at this stage of the year they are comfortable with current market expectations for fully year profit before tax, albeit much depends on Argos trading over peak. The further stabilisation of Argos like-for-likes will come as welcome news for investors today after the significant profit declines witnessed in recent years. We remain cautious on the long term strategy for Argos though.” - Matthew McEachran, Singer
“We remain concerned that the decline in profits at Argos over the last five years is more structural than cyclical. There appears to be little loyalty from customers with the company’s core categories and there is growing competition from the specialists and food retail multiples. At present, there is also little in the current strategy that in our view will arrest the current decline in Argos’ profits. We still believe Argos will be forced into a restructuring programme reducing the number of stores, which could impact the company’s currently strong balance sheet and the support provided by the sum of the parts valuations.” - Freddie George, Seymour Pierce
“We have argued for a while that Argos has too many stores and that it needs to embark upon a substantial store closure programme. Given high fixed costs and likely competitive pressures, we forecast that Argos will lose money in its full year results for 2014. Unfortunately, we still don’t see a Blue Sky scenario emerging, given the fragility of the P&Ls of both of Home Retail’s operating companies and, at Argos, the need for significant store closure, major cost reduction and brand repositioning.” - Jean Roche, Panmure Gordon
“Argos has undoubtedly benefitted from rivals Tesco and Asda switching interest back to their core food businesses and a loss of momentum in the hitherto relentless expansion of their non-food operations. Argos is also benefitting from its price and convenience credentials among price conscious and savvy consumers. However, if this recovery is to continue, Argos needs to use this breathing space wisely to further re-shape its business and add more depth to its offer; otherwise it could well yet struggle with the challenges that lie ahead.
“Homebase pointed to the impact of the erratic weather on seasonal products and sluggish big ticket sales as the main reasons behind its decline. This is really the 2012 DIY market in a nutshell; unpredictable weather patterns further compounding poor performance in a sector already suffering from a range of negative headwinds, which can largely be summarised as consumers being unwilling to spend significant amounts on their homes. ” - Matt Piner, Conlumino
“Argos is becoming more serious at inspecting its store portfolio with the closure a net of seven stores during the period. These stores contributed little to sales, combining to make up around £4m, and demonstrates an easing of its resistance towards closing stores. With multi-channel becoming a larger part of its offer, Argos should continue to be thorough when it comes to renewing store leases.
“The harsh weather and stagnant housing market has impacted another retailer with sales at Homebase down due to weaker seasonal and big ticket sales. While the launch of its Habitat range and the roll out its new formats should support its Q3 performance, with consumer confidence so brittle, Homebase will continue to find the going tough in the run-up to Christmas.” - Matthew Walton, Verdict