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Analyst view on Home Retail Group's results

Homebase team member

Senior market analyst Ken Odeluga from www.cityindex.co.uk has shared his view with Insight DIY on today's Home Retail Group results:

"Argos’s persisting weakness looks partly like a continuation of the squeeze from rival consumer electronics retailers, especially Carphone Warehouse, which we know has almost certainly grabbed market share from the entire sector over the last several months.

Home Retail blamed falling demand for TVs and tablet computers.

It had already warned in April that first half sales in the in-store catalogue style retailer would probably decline this year as it shakes-up its format, plus from the effect of flighty consumer demand.

It wants to pivot Argos deeper into digital retailing, looking for an expanded focus on higher-margin mobiles and tablet PCs whilst speeding up collections.

Obviously, Home Retail Group is very much aware of actual and future potential incursions into its major segments from a rapidly (and fiercely) expanding ecommerce sector, namely Amazon.

It is the e-tailing conglomerate giant that presents the biggest threat to Argos and that is why Home Retail is sacrificing large chunks of margin each quarter (-50 basis points at Argos versus +175 basis points at Homebase) to achieve that.

Ironically, during this drive, Home Retail Group’s erstwhile slower growing DIY arm starts to look a lot more solid and dependable, though it’s worth remembering Homebase still represents little more than 20% of HRG’s revenues compared to Argos at 76%.

Therefore, whilst management has this morning reassured that it “does not expect (a) change to analysts FY consensus forecast for pre-tax profit”, that does not rule out a slight downgrade to those expectations.

The market broadly sees the pre-tax profit for year ending in February 2016 at £131.52m after £132.1m in the year that ended in February."

For the full first quarter report please click here.

Source : Insight DIY and www.cityindex.co.uk

11 June 2015

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