UK: Digital revamp pays off as Argos returns to profit growth
- Credit: PA
CATALOGUE chain Argos has returned to profits growth after an “encouraging” year in which more than half its sales were generated online.
A digital push at the high street business helped Argos deliver a 6% increase in underlying operating profits to £100.3million, in sharp contrast to the near 60% plunge the previous year, after its first rise in like-for-like sales for five years.
Online and mobile sales accounted for more than half of all revenues at the 737-strong chain during the year to March 2, helped by its click and collect service, while the group said it was on track to launch the first full digital catalogue before Christmas.
Parent firm Home Retail Group, which also owns Homebase, saw overall underlying pre-tax profits drop 10% to £91mn after a tougher year at the DIY chain, which was left nursing a 52% fall in earnings to £11m.
The group pledged to continue investing in its transformation plan at Argos and Homebase recovery efforts despite expectations for another challenging year for retailers.
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Home Retail chief executive Terry Duddy said the year ahead will remain similar with consumer spending continuing to be “impacted by ongoing inflationary pressures and low levels of consumer confidence”.
Strong demand for tablet computers saw like-for-like sales increase 2.1% across the 737 store Argos chain, with online and mobile sales now accounting for 51% of all revenues, up from 48% a year earlier.
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More customers chose to reserve products online to pick up in store, accounting for 31% of all revenues, while smartphone sales now represent 10% of trade.
Confirmation of the turnaround success at Argos helped Home Retail shares lift 2%, but analysts questioned if the revival can be maintained.
Retail experts at N+1 Singer said while self-help measures “cannot be ignored”, Argos was also being boosted by short-term factors, such as the collapse of competitor Comet and the recent surge in the tablet market.
They added: “We remain cautious on the longer term outlook for the business, believing that management’s targets feel too optimistic.”
But the City is expecting the wider Home Retail business to grow profits for the first time since 2008 over the new financial year, forecasting underlying earnings of £100m.
Home Retail unveiled a digital makeover of Argos last October that will see the circulation of the print version of the catalogue, first launched in 1973, reduced and at least 75 stores closed or relocated over the next five years.
It aims to maintain a store network of around 700, but said around 11 stores were closed in the last financial year and another 10 due to shut over the next year.
Argos is also launching a number of store trials that will include more innovation with web-based browsers replacing catalogues, wi-fi to allow customers to use their smartphones and tablets in stores, and a fast track collection service for goods bought online.
Home Retail is also taking steps to stem falling sales and profits at Homebase, but said it was victim to recent adverse weather as comparable sales at the business fell 4.9%.
The group is spending £800,000 on store revamps across the DIY business, while also improving its internet service and increasing its brand ranges from the likes of Laura Ashley and Habitat.