LONDON (Reuters) - Home Retail Plc HOME.L claimed vindication on Thursday for a decision not to reduce its extensive Argos chain, saying it was proving a lucrative asset as British shoppers increasingly opt to order online then collect goods from stores.
During the economic downturn, Argos’ 734-strong UK store portfolio was seen by some analysts and investors as a structural, and potentially fatal, weakness as more spending moves to the Internet.
But as the popularity of “click and collect”, or what the company calls check and reserve, has grown, its estate is now seen as a competitive advantage.
Click and collect - which means customers don’t have to wait at home for a delivery - represented 29 percent of total Argos sales of 868 million pounds ($1.5 billion) in the 13 weeks to May 31, Home Retail’s fiscal first quarter, the company said.
Overall internet sales were 42 percent of total sales.
Sales at Argos stores open for more than a year rose 4.9 percent compared with the year before, the company said, ahead of analysts’ average forecast of 3.7 percent and an eighth consecutive quarterly rise.
Sales were driven by demand for garden furniture and outdoor toys on the back of better weather than last year, as well as sales of video games and TVs ahead of the soccer World Cup.
“People were writing articles less than two years ago saying that we needed to do an emergency rights issue (of new shares) and close a third of our portfolio,” Finance Director Richard Ashton told reporters after Home Retail updated on trading.
“We always said that just made no financial sense,” Ashton added, noting that although Argos’ sales fell in the downturn, all stores had remained profitable.
“We were strongly of the belief even in those days that multi-channel (retailing) was the way forward, that check and reserve was going to be a huge convenience factor for customers,” he added.
After tough trading during the recession, with underlying pretax profit sliding to 91 million pounds in fiscal 2013 from 433 million five years before, Home Retail began implementing a turnaround plan last year aimed at pushing Argos sales up 15 percent to 4.5 billion pounds by 2018.
Argos, which contributes around 70 percent of group revenue, is being reinvented from a catalogue firm - where items are selected from a laminated catalogue in stores - to a digitally-led business, targeting more sales from tablet PCs and mobile phones.
“Stores, once seen as a burden too great for Argos to bear, have now become perhaps its greatest advantage over pure-play retailers,” said analysts at retail research group Conlumino.
Argos is improving its order retrieval systems and speeding up collections and Home Retail is also trialing Argos-branded outlets within its 322-store Homebase home improvement chain, where business is benefiting from increased activity in the housing market.
Shares in Home Retail, which have risen 37 percent over the last year, were down 2.2 percent at 196 pence, valuing the business at 1.6 billion pounds.
Like-for-like sales at Homebase grew 7.9 percent, helped by strong demand for barbecues and plants and big-ticket items such as kitchens.
Home Retail said it was on track to meet market expectations for underlying pretax profit of 129 million pounds in 2014-15, up from 115.4 million pounds the year before.
However, the group cautioned that it faces tougher comparative numbers through the remainder of the year, particularly given Homebase’s like-for-like sales in the second quarter of 2013-14 had soared 11 percent.
“Unless we either repeat the record-breaking summer (weather) of last year, or England make it to the World Cup final, it’s unlikely that Homebase will report a positive like-for-like sales performance in the second quarter,” said Chief Executive John Walden.
Editing by Paul Sandle and David Holmes
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