Catalogue of woes for Argos owner as profits slump 13%

Another tale of retail gloom today from Home Retail Group, as Argos sales fall by 6%. But all is not lost, it insists.

by James Taylor
Last Updated: 19 Aug 2013

It was an all-too-familiar story from Home Retail Group today: sales at both Homebase and Argos have slumped in the last few months, as the higher cost of living and the looming threat of redundancies have taken a heavy toll on customers' disposable income. Argos was particularly hard hit, with like-for-like sales down almost 6%. But although HRG isn't expecting things to pick up any time soon, it's in a better position than most to cope: with £260m in the bank, it can at least afford to keep investing online, where more and more of its business is being done...

It's clearly been a tough financial year for HRG, especially since the start of 2011. Full-year operating profit was down 13% to £251m - grim indeed, though broadly in line with the prediction HRG made last month (when it was forced to issue a profit warning). And it's easy to see where the problem lies. Whereas Homebase sales were broadly flat, Argos sales were down 3.5%, or 5.6% if you strip out new retail space; as a result, profits were £47m lower than last year. It's also just lost its managing director Sara Weller, who's stepping down for personal reasons; HRG boss Terry Duddy will take the helm until a permanent replacement is found.

HRG chairman Oliver Stocken is, not surprisingly, blaming the general malaise that's affecting all retailers at the moment – or, to put it in corporate-speak: 'Economic uncertainty and a low level of consumer confidence continue to adversely impact customer spending patterns.' Since this looks unlikely to go away any time soon - and since Argos is likely to be squeezed harder than most, given its typical customer profile - HRG is, not surprisingly, expecting another tough year.

But it's not all bad news. Although sales were down, the group insists that Argos has actually managed to maintain market share, albeit in a falling market (while Homebase has actually increased its share slightly). Its store refits seem to be boosting sales. And its online offering is growing in popularity: Argos is apparently now the second largest online retailer in the UK, with almost half of overall sales now coming via this channel.

As the industry continues to try and work out what the future of retail should look like - in terms of the balance between clicks and bricks - Argos is arguably better placed than most to get it right. And HRG also has a better cash position than most, with a war-chest of £260m to spend on improving the website and refitting more stores. So when the economy starts to pick up, and its customers feel a bit less strapped for cash, Argos should be well-positioned to benefit. Well, that's the theory, anyway...

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