Argos and Homebase owner denies plans for major store closures
ARGOS owner Home Retail Group today insisted there were no plans for major store closures despite another slump in sales at the catalogue chain.
Argos, which currently has 748 stores, said like-for-like sales declined 8.5% in the eight weeks to February 25, driven by weak demand for TVs and a 35% slide in sales of video games as rivals slashed prices.
It opened one new store and closed 12 in the period as leases expired and said a further 35 leases would come up for renewal in the next year, but denied it had plans for widespread closures.
City analysts have questioned whether new Argos boss, the former BestBuy executive John Walden, will need to shrink the estate in order to safeguard profits.
However, the group said it will meet City profit hopes of �100 million for the year to February 25, despite a deterioration in sales at sister business Homebase. It suffered a 6.5% decline in like-for-like revenues, which was significantly worse than the previous period.
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Home Retail admitted that profits are likely to fall in the next year as like-for-like sales continue to come under pressure.
Home Retail said it was impossible to say how many of the 35 stores would be closed over the next year because some of them were profitable and landlords might offer lower rents on others.
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Chief executive Terry Duddy said: “On balance we will be net closing stores over the next couple of years but whether it’s five or 10 a year will be impossible to say.”
The group said there had been a significant fall in the market for audio, video games and TV, with estimates it has fallen 20% over the past year.
However, it said “core electricals” items such as kettles and toasters returned to growth in the period, while internet sales rose to 40% of the chain’s sales, up from 36% the previous year.
Homebase, which has 341 stores, bore the brunt of weakening demand for ‘big ticket items’, such as kitchens, bathrooms and furniture, which make up a large proportion of its sales in the final quarter of its year. However, profit margins at the chain increased as a result of better stock management.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the update was disappointing and that profit estimates have already been revised down by around 60%, resulting in a 50% cut to the dividend.
He added: “It is difficult to envisage an end to the company’s current woes, as economic hardship intensifies and the competition shows no sign of slowing.
“Indeed, one of the few positives for the company at present is that it seems to be maintaining costs - and, to some extent, its margins - but this cannot compensate for the sharp drop in revenues.”