Full-year profit at Home Retail (HOME) landed slightly better than expected, rising 14 per cent to £132m. However, chief executive John Walden voiced caution over the group's prospects for the current year.
He warned of headwinds in the first six months in the form of tough comparatives and "category challenges" - namely, an industry-wide decline in sales of televisions and tablets. The "digital customer experience" programme at Argos will also continue into the period, potentially disrupting trading. As a result, investors should expect "modest year-on-year first-half declines" at Argos - although Homebase won't be as affected. Mr Walden said these challenges would ease off in the second half. He added that he was pleased with last year's performance, and that the group's strong net cash position gave it capacity to invest.
Last year's result marked the second consecutive year of like-for-like sales growth at both Argos and Homebase. Argos's 0.6 per cent gain was attributed to electricals, offset by declines in furniture, homewares and jewellery. However, like-for-like growth slipped over the course of the year, from a 4.9 per cent increase in the first quarter to a 5 per cent fall in the final 12 weeks. The group opened 21 stores, bringing the total to 755, of which 60 are in the new digital format, up from six last year. This year Argos will add a further 80 digital concessions within Homebase outlets and 10 in Sainsbury supermarkets, while converting at least 50 existing stores to the digital format.
Seasonal products and big ticket items can be thanked for the 2 per cent hike in like-for-like sales at Homebase. A net 27 stores were cut from the bloated store estate, and the group continued to improve operating standards, including the staff culture. Store closures are running ahead of plan, allowing Homebase to accelerate its cost-reduction programme.
At group level, pre-tax profit was boosted by lower distribution costs, less promotional activity and big cost savings. This year, gross margins should remain flat. Broker Cantor Fitzgerald has raised its adjusted pre-tax profit forecast for this year from £135m to £138m (from £132m in 2014-15), taking EPS to 13p.
HOME RETAIL (HOME) | ||||
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ORD PRICE: | 171p | MARKET VALUE: | £1.4bn | |
TOUCH: | 170-171p | 12-MONTH HIGH: | 219p | LOW: 157p |
DIVIDEND YIELD: | 2.2% | PE RATIO: | 18 | |
NET ASSET VALUE: | 329p* | NET CASH: | £309m |
Year to 28 Feb | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2011 | 5.85 | 265 | 21.3 | 14.7 |
2012 | 5.58 | 104 | 9.1 | 4.7 |
2013 | 5.48 | 121 | 10.9 | 3 |
2014 | 5.66 | 71 | 6.8 | 3.3 |
2015 | 5.71 | 94 | 9.4 | 3.8 |
% change | +1 | +32 | +38 | +15 |
Ex-div: 20 May Payment: 23 Jul *Includes intangible assets of £1.78bn, or 219p a share |