A decent quarter for Home Retail Group

<p>Last week’s update from retailer Home Retail Group was certainly on the positive side, as the company’s Argos and Homebase businesses continue to deliver strong […]</p>

Last week’s update from retailer Home Retail Group was certainly on the positive side, as the company’s Argos and Homebase businesses continue to deliver strong performance.

For the 13 weeks from 2nd March through 31st May, total sales at Argos came in at £868mn, representing a 4.8% growth – up 4.9% on a like-for-like basis – over the same period the previous year.

The increase was thanks to growth in seasonal products as well as electrical products, such as TVs and video games, which helped offset declines in tablet sales, as well as a dip in demand for homewares, furniture and jewellery.

Total sales at Homebase were £445mn during the period, marking a 5.5% rise over the same period last year. The growth, which was 7.9% on a like-for-like basis, was helped – in part – by an increase in sales of so-called ‘big ticket’ products (which encompass items such as kitchens).

Home Retail saw gross margin declines across Argos and Homebase – 0.25% and 0.5% respectively – due to an ‘adverse sales mix impact’; though that’s a smaller decline than it was last year.

Looking ahead, the company sounded caution over year-on-year growth in the second quarter, given the strong performance it enjoyed in the second quarter of last year.

Turnaround momentum continues at Home Retail…

Home Retail’s prior struggles and subsequent turnaround initiatives have been highlighted here previously, and, it looks to be progressing well.

The company’s turnaround plan included transforming Argos – which makes up the bulk of Home Retail’s revenue (around 70% of group sales) – into an online player as the company looks to adequately combat competition.

That initiative certainly bodes well and has continued to gain traction, particularly on the mobile commerce side, which grew by 56% in the quarter and now represents 21% of total Argos sales (it was 18% in April).

Home Retail’s shares…

But despite the decent performance, shares of Home Retail closed down some 4% after the update on Thursday (12th June) and have been trending lower since – the company’s shares have dropped around 18% since this year’s peak in March.

That said, the recent declines follow something of a good run over the last couple of years, which has seen Home Retail’s shares soar more than 90%. Still, the company’s turnaround is certainly bearing fruit and it has the wherewithal to continue with those efforts in a bid to capture further growth.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.