Argos-to-Homebase owner Home Retail (HOME) hops 3.1% higher to 190p on better-than-expected half-time numbers, showing positive like-for-like sales across both its retail chains. The £1.5 billion cap flags positive progress at core chain Argos where sales transacted over mobile devices rocketed 124% to speak for 16% of total sales.


Web chart - Home Retail - Oct 2013

The home and general merchandise retailer flags a good half to end-August. Outgoing chief executive Terry Duddy, the long-serving boss set to step down next summer, reports a 53% improvement in adjusted pre-tax profits to £27.4 million, ahead of the £24 million consensus estimate, on sales 3% ahead at almost £2.6 billion.


Driven by strong sales of white goods and tablets, Argos' like-for-like sales skipped 2.3% higher, meaning the value retailer has now delivered five consecutive quarters of same-store growth, a key retail sector metric, although gross margins remain under pressure.


Investors are impressed with the turnaround at Argos, bearing down on costs and seeking to transform itself from a catalogue-led to a digitally-led retailer. Web-based sales now speak for 43% of its total revenues.


Argos' technological embrace includes a trial UK collection service with eBay (EBAY:NDQ), through which shoppers at around 50 eBay merchants can pick up products from 150 Argos stores, as well as the launch of a new budget own-brand tablet, 'MyTablet', for which hopes are high ahead of Christmas.


Over at Homebase, 5.9% like-for-like sales growth signifies market share gains and represents the home improvement chain's best half of same-store trading since 2002, although the result needs to be put in the context of prior periods of chronic underperformance. Seasonal products sold well during the heatwave, while the housing market uptick, store refits and a strong turn from Homebase's multi-channel business supported the improvement at the furniture, paints and garden products seller.


Holding the dividend at 1p and with improved £412.2 million net cash (2012: £316.4 million) in the half-time coffers, Home Retail warns consumer spending is likely to remain subdued in the second half, although Duddy insists the business is 'in excellent operational shape' ahead of the key Christmas period.


Following this morning's numbers, Oriel Securities expects consensus to rise although the broker seeks to temper some of the market's enthusiasm. It notes 'the outcome for the full-year is dependent on Argos delivering a strong Christmas trading performance and we remain concerned on the margin structure for Argos, and maintain our "reduce" stance.'


N+1 Singer has a 'hold' rating and 175p price target for Home Retail, remaining 'cautious on the longer term outlook for the business believing that management's targets feel a little too optimistic' and also noting the possibility for 'more radical surgery around the store portfolio'.

Issue Date: 23 Oct 2013