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Home Retail Group: half year results and Argos strategy update

HRG has published results for the 26 weeks to 1 September 2012 and also outlines its transformation plan for Argos following the completion of a comprehensive business review.

The full release is available to download from our Industry Articles pages.

OPERATING HIGHLIGHTS
- Ongoing investment initiatives in both businesses to maintain leadership in multichannel retailing:
- Argos multi-channel sales penetration increased to 51% of total sales. Online Check & Reserve, at 30% of total sales, remains the fastest growing channel
- Argos is the second most visited internet retailer in the UK with over 440 million site visits in the last 12 months
- Argos mobile shopping represented 7% of total sales, contributing in excess of £100m of sales in the period
- Homebase multi-channel sales penetration increased to 5% of total sales with Reserve and Collect sales growing by 31%
- Ongoing growth and development in both exclusive and own-brand products, including the introduction of Habitat product

FINANCIAL HIGHLIGHTS
- Sales down 1% to £2,531m
- Cash gross margin down 2% to £952m
- Robust management of costs with operating and distribution costs reduced by £11m to £933m
- Benchmark operating profit down 29% to £19m
- Benchmark profit before tax down 37% to £18m
- Reported profit before tax of £51m; reported basic earnings per share of 4.6p
- Strong cash generation in the period of £122m with closing net cash position of £316m

ARGOS BUSINESS REVIEW
Review identified considerable strengths and strong customer franchise but a need to invest to restore Argos to sustainable growth.

The transformation plan which will reinvent Argos as a digital retail leader and reposition it from a catalogue-led business to a digitally-led business has four key elements:
- Reposition Argos’ channels for a digital future
- Provide more product choice, available to customers faster
- Develop a customer offer that has universal appeal
- Operate a leaner and more flexible cost base

Five-year plan is underpinned by a three-year investment programme, targeting £4.5 billion of sales by FY18. The plan results in a total capital investment in Argos of c.£100 million per annum which in turn leads to a total Group capital investment of c.£175 million per annum over the next three financial years

The Group aims to maintain a positive net cash position throughout the three-year investment phase of the plan.

Terry Duddy, Chief Executive of Home Retail Group, said:“Against a challenging consumer backdrop, Argos has had a solid first half of the year supported by its multi-channel performance, with sales growth driven most notably by an improvement in consumer electronics. Homebase delivered a creditable performance in its peak trading period, given the adverse impact of poor weather conditions on its seasonal product sales and the difficult market conditions in big ticket categories.

“Market conditions remain fragile and hence we will continue to plan cautiously, however we are in good operational shape as we approach our peak trading period.

“We have also concluded a comprehensive business review of Argos which highlighted a clear opportunity to transform the business through increased investment in digital technologies. The transformation plan aims to deliver growth by repositioning Argos as a digitally-led business from a catalogue-led business, leading the market growth of digital commerce through online, mobile and tablet, and offering customers more products with the fastest, most convenient fulfilment options. This plan provides the right approach for Argos to achieve a long-term sustainable performance and profit recovery.”

Source : Home Retail Group
www.homeretailgroup.com/news-and-media/news.aspx?smlbus=1690&article=4548

24 October 2012
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