Home Retail profits tumble as Argos suffers

17:38, Wednesday 19 October 2011

Shares in Home Retail Group (EUREX: HOMF.EX - news) fell by 17pc, after profits at its main retail chain Argos plummeted from 54m to 3.4m, the lowest ever amount it has recorded in a half year.

Many analysts remain unconvinced about the business model. David Jeary at Investec said: "The central debate around the group remains whether the core Argos division is in the grips of a cyclical or structural decline. In our view, the jury is still out on this matter, although we have grown increasingly concerned that there are signs of structural pressures on the business. The further [profit] downgrades arising on the back of today's announcement will only serve to heighten investor concerns on this score." Downgrade from hold to sell at Merchant Securities

cheers skinny - hope things going well for you too

agreed mitzy - worse to come imo

dc - good post - investec have nearly caught up today lol

have a good evening all

Home Retail recovers despite downgrades

Rachel Cooper, 19:22, Thursday 20 October 2011

Bargain-hunters went shopping on Thursday, snapping up Home Retail Group (EUREX: HOMF.EX - news) despite brokers slashing their price targets.

FTSE today: market report live

After revealing that its half-year profits had slumped by just over 70pc and cautioning that the outlook for the consumer economy looked bleak, Home Retail took a tumble on Wednesday, sliding 17pc. As traders sought to buy the stock on the cheap, the company which owns Argos and Homebase ticked up 3.9 to 103.4p.

But the recovery came as analysts lowered their profit forecasts and price targets on Home Retail. Nomura cut its full-year profit estimate by 24m to 113m and lowered its price target to 100p from 110p; JP Morgan lowered its price target from 91p to 71p; Citi from 100p to 80p; and Singer from 95p to 80p.

Analysts at the latter said they remained cautious on Home Retails earnings prospects given the groups exposure to the UK mass market customer, the continuing squeeze on spending, and competition.

And any traders hoping that beleaguered Home Retail, which has suffered from rising costs and the need to discount more heavily than expected, could attract a suitor had their hopes scotched by Simon Irwin, an analyst at Liberum. He suggested that Home Retails situation would need to deteriorate much further before it became a target. We dont see Home Retail as an acquisition target until margins, and cash generation, get really distressed, said Mr Irwin, who reduced his price target from 100p to 80p.

Argos margins are still higher than most peers, and we see limited synergies with mass merchants, particularly in apparel. Any acquirer would also have significant M&A risk in a Homebase exit, and an appetite for 3bn of lease liabilities.

hi again dc - indeed - i dont intend buying in here till drops some more - today's soft bounce is i think 2 main reasons - people identify home & argos at a much higher sp so think they have a bargain - but most likely there is vague chatter about a t/o again due to the depressed sp and hopeless business model home currently uses - gl

bad news is that divi in future is expected to come under huge pressure so i would not rely on that anymore either - no kerrrrrchinnnnnngggggg here unless some mug buys home - they do have assets

Who will want them? The sites in the high street may be good. Perhaps just a mini rise.

perhaps a ggggggnnnnnihcrrrek only

The best thing about my nearest Argos/Homebase site, which is actually 'out of town', is the Hand Car Wash, which several very hard working Eastern Europeans run on the site.

You cannot believe how good a job these guys do for a mere 8. I actually give them 10 and it's still such fantastic value!

There are generally more cars at the car wash than there are for punters going to Argos.

Perhaps they should enter the car wash business. lol. My local branch never has anything in stock.

hi dc - yep i believe you ref the eastern europeans - just dont leave anything valuable in the car while they are doing it - we have similar on an out of town retail estate and those east europeans do a real good job - usually take me 4x4 there and they charge a couple of pounds extra as a big bigger - and yes give them a tip too - my tip was dont buy any home shares right now and if you have some sell and buy tcg for a moment or 2 LOL - but seriously i do give em a tip well worth it

not sure if the car wash will save home though as good as those guys are!!

gl

Worth about 60p imo.

What a weird chart.

From a recent RNS :- "HomeServe plc will, as planned, announce its results for the six months ended 30 September 2011 on 22 November 2011 and remains on track to achieve the consensus market forecast profit for the full year ending 31 March 2012."

The next woolworths I fear.

sub 70p this am.

The owner of this once iconic brand, Home Retail , is expected to turn in disappointing figures next week, after the shares have fallen by over 50% this year.

Home Retail: AlphaValue downgrades from buy to reduce, target cut from 151.1p to 108.8p.

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Indeed!

Financial highlights
§ Sales down 6% to £5,492m
§ Cash gross margin down 7% to £2,027m
§ Robust management of costs with operating and distribution costs broadly flat at £1,930m, with the impact of both underlying cost inflation pressures and the investment in new initiatives having been offset by further cost savings
§ Benchmark operating profit1 down 61% to £98m; Group operating margin of 1.8%
§ Benchmark profit before tax2 down 60% to £102m
§ Basic benchmark earnings per share3 down 59% to 8.7p
§ Closing net cash position at 25 February 2012 of £181m
§ Full-year dividend of 4.7p; no final dividend recommended
§ For the 53 weeks to 3 March 2012, sales down 5% to £5,583m and benchmark profit before tax2 down 54% to £116m. Reported profit before tax of £104m. Reported basic earnings per share of 9.1p. Closing net cash position at 3 March 2012 of £194m. The 53rd week contributed £14m of additional benchmark profit before tax2 and £13m of additional cash.

Oliver Stocken, Chairman of Home Retail Group, commented:

"While the Group's performance in the short term cannot be immune from the economic environment, we continue to focus on its strategic advantages to ensure that it will be well positioned for the economic recovery over the long term. Against this economic backdrop, the Board has decided not to recommend a final dividend this year and therefore the full-year dividend is represented by the interim dividend of 4.7p. Future dividends will be set at a level which is sustainable and which reflects the trading prospects and financial position of the Group."

Some big-name retailers will release figures this week, starting with an interim management statement from Home Retail Group on Tuesday. Home Retail, which owns the well-known Argos and Homebase outlets, released a pretty dreadful set of full-year results last month, and canceled its final dividend.

To add to trading woes, the company's managers decided to spend lots of cash on a share buyback in the hope of boosting the share price, but the timing proved disastrous as the price carried on sliding. The slump has seen the shares fall from a 2009 peak of 329p to just 72p today. Recovery investors will be looking for signs that the bottom might have been reached.