A vastly improved performance at Argos in its first quarter drove a sharp spike in Home Retail Group’s shares today to cheer its beleaguered investors.
While HRG blamed tumbling underlying sales at its Homebase chain on the almost-incessant rain in April, the DIY retailer was also buoyed by a leap in margins, as it benefited from selling fewer items on promotion, a more favourable exchange rate and cheaper freight costs.
The more upbeat news from HRG put a turbo-charger under its shares, which jumped by 10.9p, or 15%, to 85.2p.
Dragged down by falling revenues at Argos, HRG has endured a torrid time recently and passed on its final dividend in its last financial year after a 60% fall in profits to £102 million.
But underlying sales at Argos slipped by just 0.2% over the 13 weeks to 2 June, which was ahead of City expectations and compares with a 8.9% slump last year.
The improvement was driven by robust demand for laptops, tablets and Apple’s iPads, as well as positive revenues for its electricals category, including white goods, domestic appliances and floorcare products. The last time HRG delivered flat like-for-like sales at Argos was January 2010.
David Jeary, analyst at Investec, said: “The more positive performance from the electricals category has moved the chain within a whisker of what we have always seen as a key catalyst for the group, namely the return of Argos to positive like-for-like sales.”
Online sales now account for 51% of 746-store Argos’s £819 million of revenues in the first quarter.
Terry Duddy, HRG’s chief executive, said: “Over a particularly volatile trading period, Argos had a solid start to the year supported by its multi-channel performance.” He added: “There might be some slightly improving market trend happening but that is not huge.” However, Argos’s TV, audio and video gaming categories remained weak, with the UEFA European Championship having little impact on TV sales.
The wet weather hit sales of seasonal products, such as barbecues, at Homebase, which drove a 8.3% slump in underlying revenues at the DIY retailer. Gross margins at Homebase rose by 2.25%.
