The over-arching theme of Home Retail's full year results presentation was the major improvements the group is making to stores, product ranges and customer services across the multi-channel operations of its Homebase and Argos subsidiaries. It plans to up capital expenditure to between £125m and £150m this year, a significant leap from the £87m spent in the year just ended.
Despite the progress the group is making in refreshing its offering, the business is struggling to make headway. Underlying pre-tax profit slumped 11 per cent to £293m, mainly due to difficulties in its Argos business where like-for-like sales slipped 2.1 per cent - including a 9.4 per cent drop in the final quarter - and operating margins fell by 100 basis points to 6.1 per cent, partly due to adverse currency movements. And while management said Argos was able to increase share in major categories such as electricals and toy, that came in declining markets characterised by intense price competition, especially over Christmas.
While like-like-sales grew 2.7 per cent at Homebase, gross margins fell by a massive 350 basis points as a result of Sterling weakness and heavy promotional and clearance activity. However, operating and distribution costs were slashed by £50m, or 6 per cent of the total, which enabled the DIY chain to increase its benchmark operating profit from £14.9m to £41.2m.
As well as containing costs throughout the group, Home Retail also kept a tight rein on working capital. That translated into cash generation of £130m, so while the dividend was held, the group announced plans for share buybacks of up to £150m over the next year.
Prior to these results, broker Arden Partners was expecting underlying pre-tax profits of £305m and EPS of 23.8p in the year to February 2011 (2010: £293m/23.4p).
HOME RETAIL GROUP (HOME) | ||||
|---|---|---|---|---|
| ORD PRICE: | 274p | MARKET VALUE: | £2.41bn | |
| TOUCH: | 274-275p | 12-MONTH HIGH: | 323p | LOW: 227p |
| DIVIDEND YIELD: | 5.4% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 327p | NET CASH: | £414m | |
| Year to 27 Feb | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 5.61 | 297 | 21.6 | 13.0 |
| 2008 | 5.98 | 426 | 34.0 | 14.7 |
| 2009 | 5.90 | -394 | -47.4 | 14.7 |
| 2010 | 6.02 | 293 | 24.3 | 14.7 |
| % change | +2 | - | - | - |
Ex-div:19 May Payment:21 Jul *Includes intangible assets of £1.63bn, or 186p a share | ||||
