UK: Argos makeover drives return to profit for Home Retail Group

First-half earnings at Argos have risen strongly.

First-half earnings at Argos have risen strongly.

Half-year earnings at Argos have more than doubled, as a planned transformation of the catalogue chain into a digital-led retailer starts to bear fruit.

Argos’s performance and the best half-year sales figures for at least 11 years from DIY chain Homebase meant their owner Home Retail Group returned to underlying profit growth.

Terry Duddy, who is to stand down as Home Retail boss by next July after 15 years at the helm, said today the group was in “excellent shape” in the run-up to the key Christmas trading period.

Argos’s underlying operating profits leapt to £7.7million in the six months to August 31, up from £3.3m a year earlier thanks to ongoing strong demand for tablet computers.

The high street chain recently followed Tesco in announcing the launch of its own-brand tablet, called MyTablet, which will be on sale for less than £100 as part of its Christmas product range.

Home Retail said the Argos digital transformation was on track, with total internet sales now accounting for 43% of all Argos revenues, while smartphones and tablets represent 16% of turnover after investing in apps for Apple and Android.

The group plans to scale back its print version of the catalogue as it introduces more digital versions, while it is also closing or relocating at least 75 stores over the next five years.

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But it insisted the store estate will remain at the heart of its business, with around 90% of all sales still involving a shop.

Instead it hopes to reinvigorate the high street shops, with plans for a new concept store that will see hard-copy laminated catalogues axed in favour of tablets for customers to browse on.

Overall underlying group-wide pre-tax profits rose 53% in £27.4m in a sharp reversal of recent falls as the Homebase chain also delivered a robust first half performance.

A surge in demand for garden furniture in the summer heatwave helped Homebase like-for-like sales rise 5.9%, marking the strongest growth since it was bought by Home Retail in 2002. Underlying earnings at the DIY retailer rose 11% to £27.2m.

Mr Duddy predicted it would be a “tech Christmas” for its Argos business this year, with tablets and games set to be in strong demand.

But he cautioned that despite the revival in trading across both the group’s chains, consumer spending would remain “subdued” as the wider economic recovery has yet to help under-pressure family incomes.

The group is hoping for a boost from better housing market conditions, although it said there had not yet been any signs of an impact on sales.

Home Retail shares lifted more than 3% after the half-year results.

James McGregor, director of the retail consultants Retail Remedy, said Home Retail had delivered a “gargantuan” first half.

He added the increase in mobile sales at Argos showed the channel is “here to stay, and will be massive”.

Sales on smartphones and tablets more than doubled year-on-year at Argos and are on track to account for a fifth of all transactions by the end of the group’s financial year, according to Mr Duddy.

He said mobiles would likely lead all digital transactions in the future.

Home Retail is set to launch several of its new Argos concept stores over the next few weeks, with some in the London area trialling new developments, such as fast track for those who have pre-paid online.

It also recently announced a trial with eBay, which will allow customers of the auction website to pick up products at around 150 Argos stores throughout the UK.