Like-for-likes rose at Homebase but slid at flagship Argos amid challenging conditions. Here’s what the City had to say.
“Quarter-one trading is described as ‘in line’ at Argos, but in our view this is more of a holding statement. Homebase performance is pleasing, with progress on store closures, but at circa 15% of EBIT is not the near-term investment driver.
“Management rhetoric at Argos looks forward to a stronger second half, but market pessimism currently weighs on the shares.
“Signs of growth in non-electricals and that the technological challenges that have hampered Argos are behind the group will be key to share progress.” Alistair Davies, Investec
“It was a mixed trading statement. The Argos first-quarter figures were broadly in line with market expectation, like-for-like sales worse, but gross margins better than projected.
“At Homebase, in contrast, the like-for-likes were better than expected but gross margins were worse than forecast
“We need to be convinced that the recent Argos initiatives will improve earnings above and beyond the current momentum from the improving economic outlook.” Freddie George, Cantor Fitzgerald
“Home Retail, under the leadership of chief executive John Walden, is attempting to rebuild itself. Argos is now fully embracing the digital age with a new modern store fit better suited to the needs of today’s consumer. A reconfigured supply chain is also helping to bring efficiencies.
“With a newly devised strategy, Homebase looks set to remain with the group, albeit with a much smaller yet hopefully more profitable store estate.” Mark Photiades, Canaccord Genuity
“Home Retail reported a slightly better than expected first quarter, with Argos like-for-likes roughly in line with expectations but with a stronger gross margin, while Homebase like-for-likes significantly beat expectations albeit were promotion.
“Management maintain their outlook that sales will be challenging during the first half at Argos but, as always, the full-year results will depend on the important quarter-threem, which accounts for around 45% of annual revenue.
“We also highlight the recent improving trends in the UK housing market, which should support top line growth, while the recent weakening of the US dollar versus sterling improves the sourcing outlook.” Claire Huff, RBC Europe
“We expect continued weakness in the second quarter given the anniversary of last year’s strong sales of video game consoles and TVs, and remain cautious on the long-term competitive positioning of Argos.” Jamie Merriman, Bernstein
“Management are hopeful that improved marketing, easing comparatives and some product tailwinds should boost top-line trends heading into the second half.
“A better cost performance in Homebase, given the accelerated store closures, provides some support. While marginal improvements are under way (hub-and-spoke improvements, TV product cycle improvements, Argos store-in-store roll-outs), the P&L remains very geared, with forecasts dependent on uplifts in trading over which visibility is poor.
“Given this, we maintain our longer-term view that the business faces structural headwinds.” Simon Bowler, Exane BNPP