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HRG plans to invest millions to overhaul Argos and Homebase

High streets have a future despite the onslaught of online shopping, insisted Terry Duddy, chief executive of Argos and Homebase owner Home Retail Group, as the chain posted a 10 per cent decline in underlying annual pre-tax profit.

“People say that the high street is at risk because of the internet. That is not why Comet closed. Comet didn’t close because of the internet. Jessops didn’t close because of [its] lack of internet activity. They closed for different structural reasons, corporate structural reasons, and macro-structural,” he said. “Of course [the high street] is not dead.”

Mr Duddy said he expected Argos, which is reinventing itself as a digital business and moving away from its traditional paper catalogue, would still have about 700 stores in four to five years, little changed from the current total.

Consumers still wanted to shop wholly in-store, he said, for example because they wanted to pay in cash. Some 30 per cent of Argos’s sales are paid for in cash, while 32 per cent of Argos’s sales were ordered online but collected from store.

“If I want to have my boys’ tricycle, or my Nespresso coffee maker delivered, I don’t want to wait in, and I don’t want to have my iPad put through the letter box,” he said.

However, the growth in business rates facing high street chains was “not helpful.” Business rates were equivalent to 40 per cent of the company’s rental bill of £350m, he said.

With £396m of net cash at March 2, Home Retail had the firepower to adapt to the march of digital. It will invest £175m a year for the next three years, of which Argos accounts for £100m a year.

The comments came as Home Retail reported pre-tax profit excluding exceptional items and other factors, of £91m in the 52 weeks to March 2. Home Retail had forecast that this figure would be “around £90m” in a trading statement released in March.

Sales from Argos stores open at least a year rose 2.1 per cent, the first positive like-for-like sales for five years, helped by strong sales of tablet computers. Mr Duddy said the impact from the collapse of Comet and Jessops was “minimal”.

However, Philip Dorgan, analyst at Panmure Gordon, said Argos’s turnround would take “too long”. Mr Duddy defended the plan, saying: “It’s ambitious [but] we think it’s achievable”.

Year-on-year comparisons were complicated by the fact that its previous annual results covered a period of 53 weeks.

The company said the comparable underlying pre-tax profit figure was £102m in the 52 weeks to February 25, 2012. Sales were broadly flat at £5.5bn.

Statutory pre-tax profit was £130m, boosted by a £31m exceptional gain on the closure of its final salary pension scheme to future benefit accrual. The corresponding pre-tax profit was £104m in the 53 weeks to March 3 2012.

Diluted earnings per share were 11.6p, up from 9.1p. A final dividend of 2p per share has been proposed, making a total of 3p for the year, down from 4.7p.

Source : Andrea Felsted & Adam Jones – Financial Times
www.ft.com

01 May 2013
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