Home Retail Group turning a corner

Home Retail Group will announce its third-quarter sales figures on Thursday 15 January.

An Argos sign
Source: Bloomberg

The owner of Argos and Homebase had a good start to the year. For the six months until 26 August Home Retail Group revealed a 3% increase in revenue and a 13% rise in profits.

In September 2013 Terry Duddy announced his plans to step down as CEO one year into his three-year turnaround plan. John Walden took over from Mr Duddy and he is continuing the restructuring plan.

Argos accounts for 70% of the total revenue for Home Retail Group, and while Homebase is still playing second fiddle there are signs of improvement. This year Argos finished its ‘hub and spoke’ services – a same day collection service for nearly 20,000 products. The focus continues to be on technology as 13 Argos shops were transformed into digit shops, and there are plans for an additional ten stores to be converted.

Online business now accounts for nearly 45% of all transactions and this includes purchases made on mobile devices, which now stands at 22% of total Argos sales. First-half like-for-like sales at Argos rose by 2.9%, and the £300 million restructuring plan that was revealed last year will continue until 2017.

Homebase is also seeing the benefit of the reorganisation plan. Improvements to its website have seen multi-channel sales increase by a low double-digit percentage in the first six months of the year. Underperforming stores are being closed, and the company is on track to close 30 stores in the net financial year. Eleven Homebase stores have already been revamped as a trial, and there is potential for more to be transformed.

A few years ago Home Retail Group was plagued by profit warnings, now the turnaround plan that was devised by Terry Duddy is being well executed by Mr Walden. The reorganisation of the group has been fruitful so far, and the increased focus on ecommerce will ensure it continues to build and maintain market share.

The company will announce its full-year figures in April, and the consensus is for revenue of £5.78 billion and adjusted net profit of £92.35 million. These forecasts represent a 2.1% increase in revenue and an 11% rise in adjusted net profit. In October the company stated it will achieve its full-year target.

The retailer will reveal its second-half numbers in April and dealers are anticipating revenue of £3.07 billion and adjusted net profit of £71 million. This compares with first-half revenue of £2.66 billion and adjusted net income of £23.24 million.

Equity analysts are slightly bullish on the company. There are 21 recommendations attached to the stock – seven are buys, ten are holds and four are sells. The average target price is 201p, which is 6.5% below the current price.

Investment banks are less bullish on its competitor Debenhams, and out of the 24 ratings, three are buys, 16 are holds and five are sells. The average target price is 74.78p, a 7.2% rise above the current price.

The 50-hour moving average is providing support at 210p, and a move through this level would see a revisit to 200p. The upward trend since October remains intact, and last year’s high of 225p is the target. 

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