Argos: What the analysts say

“The overall aim is to ‘reinvent Argos as a digital retail leader and reposition it from a catalogue-led business to a digitally-led one’ – this sounds very sensible but we think the market will have hoped for a more ambitious plan.” - Investec analyst Bethany Hocking

“The much-awaited Argos strategic review with the Home Retail interims today paints a glittering picture, needless to say, of a “digitally led” future, with a sales base of £4.5bn in 2018 and a mid-single operating margin. There isn’t an awful lot about the much mooted subject of store closures, apart from 75 lease expiries, but Argos clearly think they need all those stores as order pick-up and collection points in their brave new multi-channel world. We shall see….” - Nick Bubb, independent retail analyst

“In many ways, Argos has no choice about embracing digital: for an operation of its nature the market is inexorably moving in this direction. What it does have choice over is how it flexes its proposition as it makes the move. If it simply translates what it does in store to the digital environment it is likely to fail; if it thinks creatively and adapts, the business will likely emerge stronger and leaner. In either case, the journey is one that will take some time to deliver on.” Neil Saunders, managing director of Conlumino

“We continue to be concerned that the decline in profits at Argos over the last five years is more structural than cyclical. We note that Argos LFLs have declined by almost 20% over the last three years and operating profits have fallen from £376m in FY08A to £94m in FY12A and are forecast to further decline to £77m in FY13E. There appears to be little loyalty from customers and there is growing competition from the specialists and food retail multiples with the company’s core categories. There is little in the current strategy that, in our view, will arrest the current decline in Argos’ profits. We still believe Argos will be forced into a restructuring programme reducing the number of stores, which could impact the company’s currently strong balance sheet and support provided by its sum of the parts valuations.” - Seymour Pierce analyst Freddie George

“Argos’s competitors are big and ugly. Amazon is close to or larger than M&S in non-food in the UK and, together with eBay, has customer approval ratings that Argos can only dream of. John Lewis’s online sales are booming, while its stores are outperforming. Tesco Direct may well be the Ocado of Tesco (sales of £500m and losses of £40m), but it is significantly expanding its online range from 75,000 at the beginning of the year to 200,000 lines currently and will grow further to 500,000 by Christmas.” - Panmure Gordon analyst Philip Dorgan

“We would have liked to see a more radical change in Argos’ strategy that leveraged its distribution network, perhaps for more third parties. Though we do note there seems to be an increased focus on collecting data from 12m customers, which will help Argos introduce personalised offers but presumably also has a marketable value in its own right. Overall though we are not yet convinced this solves the structural and competitive threats Argos faces.” - Caroline Gulliver, Esperito Santo analyst.