Home Retail warns on profits as it braces for Black Friday 'uncertainty'

• Argos profits drop £5.6m in first half, as Homebase profits jump £6.5m
• Living wage will cost retailer £15m in next financial year
• Group sales down 2% as Argos hit by slump in electricals

The retail group reported a ‘mixed’ first half as Argos profits fell and Homebase’s profits rose and revealed the national living wage will cost it £15m next financial year.

Benchmark pre-tax profits at Argos slumped £5.6m, or 47%, to £6.4m as Homebase increased profits £6.5m, or 23%, to £34.3m during the half year to August 29.

Overall benchmark pre-tax profit increased 10% to £34.1m during the period, while group sales at Home Retail dipped 2% to £2.6bn.

Home Retail warned that “without any actions to mitigate the increase in wages” caused by the new living wage the group cost in the 2016/17 financial year will be around £15m.

One third of the increase relates to ‘normal level of wage inflation’, which is already included in the group’s longer term financial forecasts.

Less predictable Christmas

Home Retail boss John Walden said: “While group benchmark profit before tax increased slightly during the first half, performance overall was mixed.

“Homebase delivered a good first half and also made good progress with its Productivity Plan and the store closure plan in particular, which helped Homebase to achieve further cost reductions.

“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.”

Argos’ first half sales and profit were hit by declines in both electrical and seasonal product categories.

Sales at Argos declined 1.5% to £1,7bn as the retailer increased its net store estate by 85, while like-for-like sales dropped 3.4%.

Meanwhile, sales at Homebase declined 2.2% to £816m. The DIY specialist closed 25 stores during the period, which reduced its store estate to 271 stores.  Like-for-like sales increased by 5.6% as it recorded growth across all product categories.