Home Retail will report its full-year results tomorrow, and is expected to reveal a jump in profits at Argos. Retail Week highlights five areas to look out for.
Stores-within-stores
Home Retail caused a stir when it revealed it would open Argos concessions in Sainsbury’s stores that were due to open “by the summer”. The industry will be hoping chief executive John Walden fleshes out his plans for the stores-within-stores tomorrow.
Retailers have experimented with the store-within-store format in the past with mixed results, so all eyes will be on Argos and Sainsbury’s. Sportswear retailer Decathlon has followed in Argos’ footsteps by revealing it would open a click-and-collect point in Asda as the industry increasingly launches such collaborations.
Conlumino senior analyst George Scott predicts there could be more announcements around stores-within-stores tomorrow. Homebase is also introducing an increasing number of concessions into its stores, including sister brands Argos and Habitat.
Habitat recently opened a 5,500 sq ft concession in Homebase’s Chichester store, the biggest of its kind.
Growing profits
Despite a period of tough trading because of Black Friday and a slow start to electronics sales in the calendar year, The City expects Home Retail to make a pre-tax profit of £130m, representing a 13% increase on last year.
Home Retail is also forecast to increase operating profits by 15% even though its Homebase business is expected to record a profit drop amid tough market conditions.
Scott said improving profits at Argos is a result of the business moving towards an Every Day Low Pricing (EDLP) model that is helping boost its gross margins.
“They generally avoid really intense discounting,” says Scott. “Although they have struggled a little bit because they are spread so broadly so have lost out on price against discounters such as B&M.”
Scott believes Argos was forced into discounting around Black Friday, which played havoc with its sales over peak trading, because the shopping event’s mainstay is electronics so Argos had to take part.
The Homebase turnaround
New Homebase boss Echo Lu joined the business on April 20 but is not expected at the unveiling of the full-year results. Instead it will be up to Home Retail chief executive John Walden to update the industry on how the Homebase turnaround is going.
The DIY retailer is in the process of closing one in four stores so expect an update on how the closures are progressing. The retailer has already set out plans to close 25 stores by March and made £57m from selling the company’s freehold.
Conlumino senior analyst George Scott highlights the prelims showed Homebase sales were “fairly positive”, but predicts there could be more announcements about cut backs in space.
Homebase is struggling against a market that is both shrinking – as young people do less DIY – and becoming more competitive as discounters such as Poundland muscle in on the sector.
Reassurances on its digital strategy
Argos has suffered a series of glitches on its ecommerce platform of late that have left it red-faced. The City may well seek reassurances on the robustness of Argos’ web platforms and the progress of its digital stores.
Although Argos has made a lot of noise about these stores it appears reluctant to reveal whether the digital innovations, which include catalogues being swapped for tablets, are helping them outperform the more traditional stores. The location of tomorrow’s press conference at the Argos digital store in Cheapside suggests Walden will want to expound further about the virtues of its digital stores.
However, Numis analyst Matthew Taylor believes there are few signs that the Argos digital strategy is providing a material benefit on its results.
Taylor argues that the Argos rise in profits is instead down to being more disciplined over costs and a recovery economy.
Easter trading
Although Easter fell outside the trading period being reported, which covers the year ending February 28, it is expected to still feature on tomorrow’s agenda.
Independent analyst Nick Bubb argues Home Retail “will have to say something tomorrow if Easter was unusually good or unusually bad for business”.
Easter is the DIY sector’s Christmas so a poor trading period over the Easter bank holiday would pile the pressure on new boss Lu.
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