Given that Argos has been in a pretty sorry state in recent years, it seems shareholders want too much, too soon. The price of shares in Home Retail Group fell almost 10% in morning trading on Thursday, despite total sales climbing 1.2% to £828m. On its own, Argos posted almost 2% sales growth in the 13 weeks to 1st June.
Investors are fleeing because many saw the collapse of Comet last November as a great opportunity for Argos to sweep up a load of extra market share in electronics. Initially, the firm did enjoy some growth as a result, but the initial burst did not manifest itself in a general upward trend. Shareholders were expecting a quarterly rise in like-for-like sales of about 3%.
So what has kept the figures depressed by a percentage point or so? Terry Duddy, the group chief executive, thinks Argos has had ‘a good start to the year driven by continued success in consumer electronics and electricals’, but concedes that Homebase (the DIY and home improvements chain) had been ‘adversely affected by volatile weather’ (not that again). Homebase like-for-likes rose by just 1.4% to £422m in the first quarter, which is much less than Home Retail was expecting, let alone the apparently optimistic City analysts.
Duddy reckons that consumer spending is going to remain ‘subdued’ for the rest of the year, although he is at pains to stress that ‘we’re not saying it’s getting worse’, just that ‘it’s steady as she goes’. Aye, aye, Captain Duddy...
Home Retail could do with a strong summer: last month it revealed that full-year profits had fallen 10% to £91m on sales of £5.48bn. Compared with the £433m that it managed to pull in back in 2008, this is obviously disappointing. Still, it is investing, with plans to spend £175m a year for three years on store revamps for Homebase outlets, as well as concentrating on Argos’ rapidly growing online business.
Multi-channel sales now constitute about 50% of Argos’ revenue. It is also working on moving its stores onto shorter leases so that it can jump around different locations more easily. In the near term it plans to close 10 stores, and no new premises will be opened. The Argos model works principally by maximising the old ‘sales per square foot’ measure – warehouses crammed full of products instead of airy-fairy ‘customer spaces’. So if the chain can lower the cost of its premises and squeeze yet more juice out of its online operation – and it seems to have made a good start – then that sales growth stands a chance of continuing.
Perhaps a quick fix to that pesky Homebase business would be a sell-off. Although with B&Q’s profits slump last month, there’s hardly a queue of suitors…