Home Retail dashes hopes as Argos sales fall flat

15th Jan 2015 08:06

Citing a volatile trading environment, Home Retail assured that full year pre-tax profit remained on target despite flat sales at Argos falling short of City forecasts as Black Friday proved a disruptive force.Like-for-like (LFL) sales at Argos were up just 0.1% for the 18 weeks to 3 January, far short of the 2% consensus forecast from analysts, while Homebase LFL sales also disappointed, up only 0.6%.Total sales at Argos grew 0.8% to £1.8bn as nine stores were added, including seven Argos digital concessions within Homebase stores and three small format digital stores, while Homebase total sales were down 2.7% to £451m due mainly to 12 store closures in the period.Argos gross profit margins grew by 25 basis points (bps) thanks to the cautious trading stance, while Homebase gross margin shrank 100bps due to stock clearance activity at closing stores. Both chains gained from better shipping costs and currency effects.Chief executive John Walden remained pleased as the group "managed through a volatile trading environment with good control of both gross margin and costs".He said 'Black Friday' promotional events widely adopted in the UK "significantly impacted the shape of Argos' sales over its peak trading period", with the day alone seeing sales at Argos up 45%, with over 13.5m visitors to its digital channels, three times last year's visitors. To limit the impact of margins from aggressive promotions, Argos pursued a more cautious trading stance over Cyber Week period, which may have resulted in broadly flat like-for-like sales, "but achieved both improved gross margins and good cost management".Walden pointed out that Argos made good progress on its transformation plan to reinvent itself as a "digital retail leader", as sales through digital channels increased to represent half of Argos' total sales. Independent retail analyst Nick Bubb noted that Argos's strength in video games and TV's seemed to have been offset by weakness in tablets and jewellery."Given the Game Digital profit warning we expected Argos's game sales to be weak, but it sounds like they have gained market share there and lost market share in jewellery. However, given the adverse mix effect of the Electricals bias, Argos did well to achieve a 25bps increase in the overall gross margin, thanks to a lower promotional stance."