Home Retail Group, owner of Argos and Homebase, has delivered a better-than-expected performance, as total sales at catalogue retailer Argos edged up 0.2% to £819m, while Homebase was hit by the wet weather. Despite the surprising numbers, analysts remain cautious.
Argos sales have come in better than feared at -0.2% like-for-like (versus consensus -3.9%) albeit against a very weak comparable (Q1’11/12 -9.3%). The first quarter typically represents around 21% of annual sales.Homebase sales fell 8.3% like-for-like (versus consensus -8.4%). This was a further deterioration on previous quarters (fourth quarter 11/12 -6.5%, third quarter 11/12 -2.6%) as seasonal sales (40% of the mix) were impacted (-15%) by the very poor weather across the quarter.” Mark Photiades, Singer Capital Markets
“We remain negative, because we believe that Argos has too many stores, too high a fixed cost base and is close to making losses. Home Retail is saying that it is happy with consensus pretax profit forecasts of £67m, compared with our forecast for £37m . However, cash gross profits are down at both businesses, it is very early in the year, competitive forces are increasing and we would not get too carried aweay by one not-as-bad-as-feared quarter.” Philip Dorgan, Panmure
“Given the weather year to date, this morning’s update is much better than expected, especially at Argos, which delivered a strong performance in consumer electronics. Given the still short base in the stock and this morning’s better performance, it would seem reasonable to expect the shares to squeeze today.” Gillian Hilditch, JP Morgan
“We do not expect to move our full year forecasts at this early stage of the year, given the disproportionate weighting of Argos profits to Christmas, although Q1 implies a re-balancing – up at Argos and down at Homebase. We remain negative on the fundamentals in light of our view of structural pressures magnifying the cyclical pressures, especially on the core Argos division. This said, the more positive performance from the electricals category has moved the chain within a whisker of what we have always seen as a key catalyst for the group – namely the return of Argos to positive LFL sales.” David Jeary, Investec
“Argos - Following Dixons’ last trading statement, and ongoing strength in consumer electronics at John Lewis, the flat performance in consumer electronics is not a complete surprise, with tablets and laptops offsetting weakness elsewhere. Homebase – The trade off of sales margin does strongly demonstrate the reduced level of promotional activity in the DIY market. Homebase did start to promote a little more heavily towards the end of the period to start to clear excess seasonal inventory although the impact was a little less than we had expected. We regard the clear demonstration of reduced competition in DIY to be positive for the industry.” Simon Irwin, Liberum Capital
“Argos’ multichannel uptake continues to be impressive, with multichannel now representing more than half of overall sales. British consumers are becoming ever more diverse in their shopping habits, and Argos’ strong presence across channels has left it well-placed to meet evolving expectations.
“However, we continue to have doubts over the long term prospects for Argos. Above all, the retailer is increasingly struggling to maintain a point of differentiation. It suffers from a lack of compelling product, and the two traditional tenets of its competitive advantage – price and convenience - have slowly been eroded by the grocers and online players such as Amazon. While Homebase has made positive strides in relation to its online proposition, it has fallen behind its rivals on other aspects of its offer. Tradesmen and serious DIYers are typically drawn to Wickes, while B&Q continues to be the predominant retailer of choice among more casual shoppers.” Joseph Robinson, Conlumino