Home Retail Outlook Brightens as Retailer Plans an Online Future

Home Retail Group Plc said it’s less cautious about the outlook for sales this year as an expanded multi-channel offering and wider product range attract more shoppers to U.K. store chains Argos and Homebase.

Revenue in both businesses is expected to be “flat to slightly up,” Chief Executive Officer Terry Duddy said today on a conference call after reporting a 10 percent decline in annual earnings. Duddy said he’s “optimistic that actually it’s going to be a better summer to come.”

Home Retail is seeking to transform Argos into a leader in digital retailing while adding Habitat and Laura Ashley concessions inside Homebase stores to stimulate sales that are lower than they were seven years ago. The retailer has pledged to invest 175 million pounds ($272 million) a year over the coming three financial years to bring the plan to fruition.

“The current trading statement is a little more positive than previous statements,” Freddie George, an analyst at Cantor Fitzgerald Europe, said by e-mail. “We still believe it will be a challenge for the company to improve earnings even with a cyclical upturn,” said George, who has a hold recommendation.

The shares rose 1.5 percent to 158.1 pence at 9:24 a.m. in London. They’ve climbed 25 percent this year.

Pretax profit in the year ended March 2 declined to 91 million pounds, Home Retail said, matching analyst estimates. Sales were little changed at 5.48 billion pounds as bad weather and low consumer confidence hurt sales of seasonal items and larger products such as kitchens at Homebase.

Increased Share

Both Argos and Homebase increased their share of the market last year, the company said. Online sales at Argos rose 10 percent and represented 42 percent of the chain’s revenue.

Argos is testing a series of new formats in the north-east of England, including a new digital catalog with fewer, mostly seasonal products and an expanded online offering of items for next-day delivery, Duddy said.

“The last 12 months have seen consumers really embrace shopping across different channels and, in particular, utilizing the convenience of click-and-collect services,” said Matt Piner, research director at market researcher Conlumino. “However, the task ahead is still extremely tough and competition will be fiercer.”

Duddy said shareholders aren’t yet “absolutely convinced” on the strategy outlined six months ago. Home Retail is funding the plan with its own cash and is debt-free, he said.

Homebase Refurbishments

Homebase is refurbishing 15 of its 336 stores this year, increasing staff numbers and adding more “ideas and inspiration” for homes and gardens, Duddy said. Sales are expected to increase by 20 percent in refitted stores, he said.

Industry conditions in the coming 12 months will be similar to last year, with spending still being affected by low consumer confidence and inflationary pressures, Home Retail said.

The retailer said it will pay a final dividend of 2 pence a share, giving a payout for the year of 3 pence. The company didn’t pay a final dividend in the previous year after making a first-half distribution to investors of 4.7 pence a share.

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