Home Retail impresses with twin growth from Argos and Homebase

LONDON (ShareCast) - Full-year profits from Home Retail (Other OTC: HMRLF - news) nudged slightly higher than forecasts as both Argos and Homebase delivered like-for-like sales and profit growth for the second successive year. The FTSE 250 retailer, which made no comment on current trading, lifted its full-year dividend 15% to 3.8p as earnings per share rose 25% to 13.0p on pre-tax profits up 14% to £132.1m.

Sales were 0.8% higher to £5.71bn, with like-for-like sales up 0.6% at Argos, and up 2.3% at Homebase.

Group gross margin slipped 20 basis points (bps) to 35.7% as a 25bps increase from Argos was ruined by Homebase's 100bps fall.

Total (Swiss: FP.SW - news) operating costs were cut by £14m thanks to savings from a new productivity plan and store restructure at Homebase, along with the new hub-and-spoke distribution network at Argos.

The group's net cash position at the end of February was £309m Argos's transformation into a 'digital retail leader' continued with 60 shops now trading as 'digital stores' and internet penetration accounting for 46% of total sales, with mobile now representing 25% of total sales.

For its part, Homebase made a start on its intended 25% reduction in the store estate, cutting the number of shops in the period by 27 to 296 "in a cash generative manner".

As part of the chain's productivity plan, Argos concessions have been introduced into 20 stores and Habitat concessions in 35 stores, with more to come, as well as an updated digital offering that will benefit from the investments in Argos.

Chief executive John Walden said: "Home Retail Group believes that it has an opportunity to build a leadership position as the market becomes more digital, by developing capabilities and multi-channel customer experiences that anticipate a digital future.

He said the Argos transformation plan, which is two years in to the five, will continue to be the group's principal source of shareholder value over the medium term.

"Full year 2016 will be an important year as Argos will for the first time introduce to the market several new customer propositions, enabled by new digital capabilities," he added.

Broker Canaccord noted that profits remained 70% below peak profitability of £433m achieved in 2008.

Consensus for the new financial year stood at £136m before the results and with now news on current trading forecasts were unchanged.

A trading statement covering the first 13 weeks of the new financial year is due on 11 June.