Home Retail Group (HOME) is expected to report another big fall in profits when it announces its interim results on Wednesday.

Recent news: The first and second-quarter trading statements hinted that first-half sales and gross profits would be down. Management comments also suggested costs would be reduced.

Last year, Home Retail's pre-tax profits fell from £103 million to £28 million.

Analysts' expectations: The consensus forecast is for first-half pre-tax profits to come in at £14 million.

Philip Dorgan, analyst at Panmure Gordon, is cautious about the upcoming Christmas trading period due to "tough" competition and pricing. He stresses that Argos has too many branches and needs to embark upon a substantial store closure programme.

"Because Home Retail has cash of around £200 million, it is under no immediate financial pressure. This also means that Argos could trade at a loss for some time," he points out. "This is the good news, but it is not enough for us to buy the shares, nor is a less-bad-than-feared second-quarter."

"Both of its operating companies still have fragile profits and losses and we think that Argos requires significant store closure, major cost reduction and brand repositioning. We believe that the risks therefore remain very much on the downside."

Valuation: The stock is trading on a 2012 PE ratio of about 16 times.

Questor share tip: Home Retail's valuation is too high to buy
By Garry White | Telegraph – 2 hours 40 minutes ago.. .

.HOME RETAIL GROUP

Home Retail Group (Other OTC: HMRLF.PK - news) has unveiled it new strategy to boost profits at Argos. The plan is sound, but the valution is too high to buy the shares right now. Questor says avoid.

Home Retail Group 112p Questor says: AVOID

Home Retail group, the owner of Argos, has unveiled plans to return to profit growth at the high-street chain. The market took the news very well.

The company plans to increase its customer base, by repositioning Argos’s channels for a digital future. It’s bye-bye to the catalogue and hello WiFi enabled stores and iPad ordering. After significant investment in IT, management are targeting £4.5bn of sales in 2018, compared with £3.9bn now a mid-single-digit operating margin. A total of 50 stores will be closed and 25 repositioned.

Management has committed to spending £175m a year over three years and expects to see restructuring costs of £50m a year. However, Terry Duddy, chief executive, tells Questor he expects to do this with the company’s own funds.

By the year end, Mr Duddy expects to have around £300m in cash on the balance sheet and the group has recently implemented better cashflow management, which should strengthen cash conversion. The group also has a loan book of about £450m, so could potentially securitise this should it need more cash

There is no doubt that the new direction is ambitious, but it is certainly achievable. The plans appear to imply like-for-like sales growth of about 3pc at the Argos chain. However, trading is very tough at the moment.

The interims released alongside the strategy review, saw like-for-like sales at Argos rise just 0.6pc and this was from a low base. Same-store sales in the equivalent period of 2011 fell by 9.1pc. Total (Brussels: FP.BR - news) pre-tax profit at the group, which also owns Homebase, fell 37pc, with Argos operating profit down 3pc.

The shares have surged by 60pc in the run up to the strategic review and are now trading on a February 2013 earnings multiple of 18, falling to 16 in 2014. This is a heady rating when compared with Dixons Retail (Other OTC: DSITF.PK - news) , which trades on a multiple of 15, falling to 10.5. Essentially, the valuation is pricing in a near-perfect execution of the new strategy.

There is no doubt that Mr Duddy’s plan is correct that’s why investors have propelled the shares to such a high rating. However, any missteps or deterioration in the consumer backdrop will be punished. On valuation grounds, avoid.

Argos and Homebase owner Home Retail (LON:HOME) has been feeling the biting wind of competition blowing from the Internet, as well as High Street rivals such as Tesco and Dixons.

The group makes its third quarter (Q3) trading update, covering the 18 weeks from September to December.

“For Argos … we forecast 3Q LFL sales growth of only +0.5% with a gross margin hit of -60 basis points (bps), predominantly due to an adverse sales mix along with some price investment. We believe the consensus LFL sales estimate for Argos is around 0.3% with a wide range of -2.5% to 2% and consensus gross margin estimate is c. -50bps, with a range of -75bps to 25bps,” reports Caroline Gulliver, the retail analyst at Espirito Santo.

For Homebase, Gulliver forecasts a 1.5% decline in LFL sales for the third quarter.

“We believe the consensus LFL sales estimate for Homebase is -2.3%, with a wide range of -4.2% to +1%. We are forecasting gross margin of +25 bps, with consensus c.-25 bps with a range of -100 to +50bps,” Gulliver revealed

Interim Management Statement

Argos

Total sales at Argos grew by 1.6% to £1,744m. Net closed space reduced sales by 1.1% in the period with the store portfolio remaining at 739.

Like-for-like sales increased by 2.7% in the period. Consumer electronics continued to deliver an improved sales performance driven by strong growth in tablets, which together with further growth in white goods, toys and core electricals, offset weaker trading in the homewares and jewellery categories.

The approximate 50 basis point gross margin decline was principally driven by the sales mix impact from the improved performance in consumer electronics and price investment, partially offset by the anticipated net benefit of favourable currency and reduced shipping costs.

Homebase

Total sales at Homebase declined by 4.5% to £453m. Net closed space reduced sales by 0.6%; three stores closed in the period, reducing the store portfolio to 337.

Like-for-like sales declined by 3.9% in the period principally driven by the continued weakness in big ticket sales.

The approximate 50 basis point gross margin decline was principally driven by an increased level of clearance activity.

Other

No other material events, transactions or impacts on the Group's financial position have taken place since the previously announced 1 September 2012 balance sheet date.

RSI picking up.

End of Year Trading Statement

Taken some off of the table here.

Full Year Results - Part 1

Full Yera results = Part 2


Operating highlights

§ Announced transformation plan which will reinvent Argos as a digital retail leader and reposition it from a catalogue-led to a digitally-led business
§ Announced plans to invest in Homebase store refits and accelerated multi-channel capability to deliver an enhanced customer proposition
§ Argos' multi-channel sales penetration increased to 51% of total sales. Internet sales grew 10% to reach 42% of Argos' total sales. Argos' website and app visits increased by 24% with mobile shopping now representing 10% of total sales
§ Homebase's multi-channel sales penetration increased to 5% of total sales with Reserve and Collect sales growing by 27% and website visits increasing by 23%
§ In a year of positive like-for-like sales growth, Argos returned to market share growth whilst Homebase, despite a difficult trading environment, delivered its fourth consecutive year of market share gains
§ Ongoing growth and development of both exclusive and own-brand products, including the introduction of Habitat product into both Argos and Homebase

Financial highlights

§ Sales broadly flat at £5,475m
§ Cash gross margin down 1% to £2,002m
§ Robust management of costs with operating and distribution costs reduced by a further £21m to £1,908m, as underlying cost inflation was more than offset by further cost savings
§ Benchmark operating profit2 up £6m at Argos and down £12m at Homebase
§ Benchmark profit before tax3 down 10% to £91m
§ Basic benchmark earnings per share4 down 11% to 7.7p
§ Reported profit before tax of £130m; reported basic earnings per share of 11.7p
§ Strong cash generation in the year of £202m, driven principally by a strong working capital performance, with a closing net cash position of £396m
§ Full-year dividend of 3.0p (2012: 4.7p); final dividend of 2.0p recommended

Take your pick.

Panmure Gordon Sell 150.30 80.00 80.00 Reiterates

Investec Buy 150.30 173.00 173.00 Retains

Oriel Securities Reduce 150.30 - 140.00 Reiterates

Home Retail to reinvent Argos to stem profit fall

LONDON | Wed May 1, 2013 3:01pm BST
(Reuters) - Home Retail (HOME.L), Britain's biggest household goods retailer, will reinvent Argos stores to allow shoppers to pick up pre-paid goods in less than a minute, as it trials new initiatives to reverse half a decade of profit falls.

The group, which also owns the Homebase DIY chain, posted a 10 percent fall in 2012-13 profit, a fifth straight decline, and said it did not expect any improvement any time soon as consumers fret over job security and a squeeze on incomes.

Gone long looks like a recovery play fundy wise and chart looks very enticing......

Interim Management Statement

"Argos has delivered a good start to the year driven by continued success in consumer electronics and electricals, supported by growing internet and mobile commerce sales. Overall, its trading has been consistent with our expectations. Homebase produced a positive like-for-like sales performance, however seasonal sales were adversely impacted by the volatile weather and as a result its performance for the quarter was slightly behind our expectations.

Whilst we expect consumer spending to remain subdued, we are on track with delivering our investment plans to drive the long term development of both Argos and Homebase."

Second Quarter Trading Statement

Argos

Total sales at Argos grew by 2.4% to £889m. Net closed space reduced sales by 0.3% in the quarter with the store portfolio remaining at 737.

Like-for-like sales increased by 2.7% in the quarter. Growth was driven by strong sales in seasonal products which benefited from favourable weather conditions; this combined with continued growth in electricals, more than offset sales declines in furniture and homewares.

Sales via the internet continued to grow with internet penetration now representing 44% of total Argos sales, up from 42% for the same period last year. This growth was supported by strong sales in mobile commerce, which saw sales grow by 133% to 17% of total Argos sales, up from 7% for the same period last year, driven by the ongoing development of Argos' mobile and tablet apps.

The approximate 50 basis point gross margin decline was driven principally by the sales mix impact from the growth in electricals.

Homebase

Total sales at Homebase grew by 9.3% to £400m. Net closed space reduced sales by 1.7% in the quarter; three stores closed in the quarter reducing the store portfolio to 333.

Like-for-like sales increased by 11.0% in the quarter driven by strong sales of seasonal products, which represent c.40% of total sales in the quarter and which benefited from favourable weather conditions. Big ticket sales performance was also slightly ahead while sales in the remaining categories were slightly down.

The gross margin rate was level with the same period last year.

Other

A cash payment of £14.1m was made to the Home Retail Group Employee Share Trust during the period to fund the purchase of 10.0m shares. The shares contribute towards those already held by the Trust and which are potentially needed to satisfy obligations arising from employee share schemes, the majority of which relate to the save-as-you-earn plans offered to the Group's c.50,000 colleagues.

Other than those previously disclosed, no material events, transactions or impacts on the Group's financial position have taken place since the previously announced 2 March 2013 balance sheet date.

Half Year Results - Part 1

Operating highlights

§ Good first half, with both businesses delivering a positive like-for-like sales performance
§ Argos Transformation plan progress:
- Internet penetration increased to 43% of Argos' total sales, with mobile commerce growing 124% to account for 16% of total sales
- Launched both new and improved smartphone and tablet apps
- Reached eight million customer registrations
- Expanded 'hub & spoke' trial to around 50 stores
§ Homebase Renewal plan progress:
- Completed a further five store refits
- Launched a next or named day delivery proposition
- Grew multi-channel sales by 28%
- Achieved further market share gains

Financial highlights

§ Sales up 3% to £2,596m; like-for-like sales up 2.3% at Argos, and up 5.9% at Homebase
§ Cash gross margin up 1% to £962m
§ Operating and distribution costs held broadly flat at £936m
§ Benchmark operating profit1 up 40% to £26.4m
§ Benchmark profit before tax2 up 53% to £27.4m
§ Basic benchmark earnings per share3 up 79% to 2.5p
§ Reported profit before tax of £14.2m; reported basic earnings per share of 1.6p
§ Cash generation in the period of £16m with closing net cash of £412m
§ Interim dividend of 1.0p (2012: 1.0p)

Nice results... improving steadily over the last few years.

Next target is 230p for me and increase in the divi.

Trading Update 16th January.

Interim Management Statement

Appointment of new Chief Executive