Home Retail Group Trading and Disposal

As a follow up to my blog post on the possible Sainsbury/Home Retail deal yesterday, here are some comments on the Home Retail Group trading statement issued this morning.

Total sales at Argos increased 0.9%, but like-for-like sales were down 2.2% in the period as a result of reduced store footfall and growth in digital transactions. Homebase total sales were down 4% but like-for-like grew by 5% – this mix arises from an “aggressive store closure program”.

But the killer in their statement is that “As a result of the recent trading period, we expect that Group benchmark profit before tax for the financial year ending February will be around the bottom of the current range of market expectations……”

There are however a lot of positive comments about new initiatives, particularly in the digital area and distribution capabilities. Note also that the previous day they announced they were near to disposing of Homebase for £340m in cash. That might simplify the possible bid from Sainsbury as they had no obvious plans for that operation and hence the assumption was that they would be disposing of it anyway.

The trading statement in essence reinforces the previous view held by many on Home Retail Group – that Argos is a catalogue business in decline but trying to reinvent itself as a modern web based business with an efficient distribution capability. That transition is going quite well, but they still have 844 stores which actually grew by 4 during the period. Although a lot of them are on short leases, the question is whether they are of much use to Sainsbury. The concept of customers using terminals in-store to purchase products over the net also seems an odd one and an adaptation of a legacy model rather than a move directly into the digital age.
Roger Lawson

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