Behind the Spin: Home Retail Group

The dilemma

by
Last Updated: 31 Aug 2010

You may not have heard of Home Retail Group, but you've surely made a trip or two to its retail chains Homebase and Argos. Both are struggling. Releasing its Q2 figures last month, HRG said Argos had posted its worst quarterly sales for nearly a decade, and it would write down the value of Homebase by 'several hundreds of million' pounds. The group's share price fell by 13.7p to 228p on the news. HRG values Homebase at £1bn, but pessimistic analysts are putting it as low as £100m. Half-year group profits were down by £25m to £150m.

THE SPIN

Said HRG's chief exec Terry Duddy: 'The performance of Argos and Homebase in the last quarter was reflective of a difficult consumer environment. The biggest factor is underlying demand.' He was adamant that HRG was performing 'comparatively well' and was on course to hit profit forecasts.

THE STRAIGHT TALK

Duddy admitted that October and November will be difficult for trading, and that much hope rests with a pre-Christmas shopping bonanza to lift figures and spirits. Homebase was bought six years ago from PE group Permira for £900m, when HRG was part of GUS. Maybe it's not looking like such a great investment now. It's true that the credit crunch is biting into high street sales, but this won't excuse all the group's failings. Homebase has been losing market share to rival B&Q, and the entire DIY market has been contracting since 2005. Meanwhile, at Argos, sales of furniture and homeware have continued to slip, although electronic goods such as video games and TVs have been walking out the door. Staff, however, haven't been happy with management. In July, Argos employees at four distribution centres voted to strike after turning down a 4% pay offer. The union Unite was angry because HRG had offered a 'below inflation pay deal' after awarding its CEO a 58% pay rise. The group countered that its offer was competitive.

THE VERDICT

Like other high-street retailers, Argos and Homebase are being hit by the housing slump and vanishing consumer confidence. The appalling summer weather hasn't helped sales. Freddie George, an analyst at Seymour Pierce, said: 'Alongside the economic downturn, the weather has been dreadful and that has really pulled things down.' As the commercial outlook continues to deteriorate, HRG must be hoping for a short recession; the longer it drags on, the harder it will be to win back the elusive consumer pound.

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