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Homebase to close 25% of store estate

Home Retail Group has reported on trading for the 26 weeks ended 30th August.

Homebase Operational and Financial Review

Homebase progress:
- Completed a comprehensive review of the Homebase business
- Refitted a further 11 trial stores, which included Habitat concessions and improvements to the DIY and home propositions
- Upgraded the website and grew multi-channel sales by 12%
- Continued to exit underperforming stores and reduce the size of the store estate

Total sales in the 26 weeks to 30 August 2014 increased by 1.5% to £835m. Homebase closed seven stores in the period, reducing its store portfolio to 316 stores, which reduced sales by 2.6%. Like-for-like sales increased by 4.1%. Growth was driven by a strong performance in seasonal products with the growth in the first quarter more than offsetting the decline against the previous year’s tough comparator in the second quarter. There was also further growth in sales of big ticket products, particularly fitted kitchens and bathrooms, whilst sales in the remaining categories were broadly flat.

The gross margin rate was down by approximately 75 basis points principally driven by an
adverse sales mix impact from the growth in the margin dilutive seasonal and big ticket product categories, together with an increased level of stock clearance in respect of store closures.

Total operating and distribution costs were broadly flat. The cost impacts of increased sales,
underlying cost inflation and cost investment in strategic initiatives were offset by further cost saving initiatives. Cost productivity was 3% for the first half of FY15. Benchmark operating profit was £27.8m; a £0.6m or 2% increase on the comparable period last year.

The review considered a number of factors, including:
- The market and the competitive context in which Homebase operates;
- The Homebase customer experience and how it is rated across both its stores and its digital channels; and
- A diagnosis of the store estate, including analysis of the store refit trials.

The review identified that Homebase is a good business, with a strong customer franchise which had c.60 million customer transactions during FY14. It has established scale and strength in several product categories including decorating, garden and fitted kitchens and bathrooms, and it has developed successful own brands such as Habitat, Odina, Schreiber and Hygena. Additionally, Homebase has demonstrated early success in both its refit trials and its digital capabilities. 

However, the review also identified that Homebase faces several challenges, including inconsistent store operating standards and a large estate with low sales densities that result in a challenged financial model. These factors are currently limiting Homebase’s operational efficiency and constraining the success of a more aggressive store investment programme.

The conclusion of the review was that Homebase should pursue a three-year Productivity Plan through to the end of FY18, to improve its store productivity, strengthen its customer 
propositions, and accelerate its digital capabilities by leveraging Argos’ investments, in order to position itself to be ready for future investments.

John Walden, Chief Executive of Home Retail Group, said:

“The Group has performed well in the first half of the year, delivering further like-for-like sales growth at both Argos and Homebase and a 13% increase in Group benchmark profit before tax.

“Argos continued to build on its sales growth from the previous financial year, increased its 
benchmark operating profit whilst also making good progress with its Transformation Plan. 
Homebase delivered a good peak trading period, performing well throughout the half despite being up against the tough comparators of a strong second quarter last year. At this mid-way point in our financial year, we continue to expect to deliver full-year benchmark profit before tax in line with current market expectations, however, as always the full-year outcome will depend upon the important Argos Christmas trading period.

“In April I set out my near term priorities for the Group, which included undertaking a comprehensive review of Group strategy and its priorities going forward, in particular as they relate to Homebase. I have completed this review, which encompassed a range of market, strategic and operational factors.

“The successful delivery of the Argos Transformation Plan over its remaining three years 
continues to be the Group’s strategic priority and its greatest potential source of shareholder value. Homebase is a good business with the basis for future growth. In this context, Homebase will pursue a three-year plan through to the end of FY18 to improve the productivity of its store estate, strengthen its propositions and accelerate its digital capabilities by leveraging Argos’ investments. This will position Homebase as a smaller but stronger business, ready for investment and growth.”

See the full results publication here:

Source : Home Retail Group

22 October 2014

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