LONDON (Alliance News) - DIY and general merchandise retailer Home Retail Group PLC Thursday reported a ninth consecutive quarter of like-for-like sales growth for Argos, this time supported by margin growth, but tepid growth at its Homebase DIY unit as sales of seasonal goods fell short of last year.
Home Retail said it expects to report a benchmark profit in line with market expectations for the full year, although, as always, this will depend on how Argos performs over the key Christmas trading period.
It also remained cautious about its trading environment, saying that while it was cautiously optimistic about the economic outlook, it wasn't yet confident that a broad-based and sustainable consumer recovery was in place.
"We remain cautiously optimistic about the broader economic environment. Key economic indicators seem to be improving, however retail spending in general has been inconsistent across both product categories and geographies, suggesting that there is not yet a sustainable, broad-based consumer recovery," it said.
This was more cautious than fashion and home goods retailer Next PLC, which said Thursday that it had been given a boost by the improving economy, low interest rates, increasing availability of credit, less general discounting on the high street, and an improved housing market.
In a trading update, Home Retail said like-for-like sales at Argos were up 1.2% in the 13 weeks to August 30, its fiscal second quarter, driven by increased sales of electrical products like TV's, game consoles and white goods, which offset falling sales of tablets, furniture, homewares and jewellery.
Argos total sales were up 1.4% at GBP901 million in the quarter, with new space contributing 0.2% as it added 13 stores.
The like-for-like sales growth at Argos was a slowdown from the 4.9% growth it had reported in the first quarter, and meant growth for the whole first-half was 2.9%. Total sales in the first half were GBP1.77 billion.
Gross margin in the business rose about 25 basis points in the second quarter, thanks to a lower level of promotions which offset a hit from higher sales of low-margin electrical products.
Home Retail has been trying to boost Argos' online presence, but said Thursday that sales via the internet grew in line with total sales in the quarter and represented 44% of total Argos sales. Within this, mobile commerce grew by 36% and represented 22% of total Argos sales, it added.
Like-for-like sales at Homebase rose just 0.1% on the year in the second quarter. It said it had seen good demand for big-ticket items, but this was offset by a decline in sales of seasonal products after a very strong performance last year.
Total sales at the DIY retailer were down 2.8% at GBP390 million in the quarter, mainly because it closed six stores in the quarter. The unit's gross margin also fell by about 75 basis points, which it blamed on stock clearance promotions in the stores it was closing, as well as the higher sales of lower-margin big ticket items.
Homebase's like-for-like sales growth in the second quarter was also a big slowdown from the 7.9% growth it has posted in the first quarter. That meant growth for the whole of the first half was 4.1%.
However, Home Retail said it was pleased with the second quarter performance at Homebase, particularly as it was up against tough comparatives.
"Homebase performed well over its peak trading period, following up its good performance in the first quarter with broadly flat like-for-like sales in the second quarter. This is especially pleasing given that we achieved this against a strong 11% like-for-like in the same period last year," it said in its statement.
Home Retail shares were down 2.4% at 183.20 pence early Thursday, the second-biggest decline on the FTSE 250.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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