Home enhancement chain reports flat sales in first half, while Home Retail Group stablemate Argos sees sales decline and 94% drop in operating profit.


Homebase sales dropped 1.8% for the 26 weeks ended August 27, 2011 - down just 0.6% on a like-for-like basis. Home Retail Group chief executive Terry Duddy described the results as a "robust performance" in weak trading conditions, with the home enhancement retailer growing market share in the first half.

However, operating profit dropped 35% to £29.9m in the period and gross margin declined 25 basis points, impacted by adverse currency and shipping rates.

While big-ticket ranges continue to prove a challenge in the current climate, Homebase reported good growth in bedroom furniture during the period, boosted by new fitted ranges and the rollout of its installation services. Bathrooms also performed well, while the retailer continues to offer competitive prices with its Value range and Best Buy offers.

Meanwhile, Argos' results told a different story, with the general merchandise retailer reporting a total sales decline of 7.6%. Like-for-like figures dropped further, down 9.1% for the 26-week period, as Argos customers struggle in the economic climate. Operating profit for the 754-strong chain dropped dramatically from £54.4m in H1 2010 to £3.4m in 2011. Parent Home Retail Group said Argos had seen a slowdown in spending, as its core customer demographic has been harder hit by the economic conditions and tended to benefit less from the current low interest rate environment.

While Argos had success in some areas, including homewares and seasonal products, other product categories have struggled, such as consumer electronics, which dipped around 20% in the first half.

Group sales were down 6% to £2,568m, with pre-tax profit down to £29m from £103m in 2010. As well as launching new initiatives across both retail chains, the group also acquired the Habitat brand for £24.5m earlier this year.

Terry Duddy commented; "Homebase delivered another robust performance in its peak trading period. Core customers at Argos have continued to be under greater pressure and there were ongoing challenging conditions across several product categories. As we now enter our busiest trading period market conditions remain both weak and volatile, and I these early weeks of the second half, we have not seen the improvement in sales that we had anticipated."

Credit Suisse today suggested that Argos, "remains vulnerable to medium-term structural pressures, as supermarkets continue to develop their non-food offer, which in our view, is likely to restrict Argos' ability to expand EBIT margins over the long term."

In a separate announcement, Home Retail Group revealed the launch of a joint venture company with Argos and home appliance manufacturer Haier Group to develop a multi-channel general merchandise retail business in China.

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