Home Retail Group takes dividends off display

Friday, May 04 2012 by
7
Home Retail Group takes dividends off display

Home Retail (LON:HOME), the FTSE 250 company behind two of Britain’s best known retail chains, Argos and Homebase, saw profits fall by 60 percent to £102 million last year. For anyone in any doubt, the figures reinforced the fact that many retailers are still encountering torrid conditions on the High Street... but the problems for Home Retail run deeper than that. 

What’s the story? 

Home Retail’s 2012 prelims were not pretty. Sales at Argos (which account for 80 percent of group sales) were down by 8.9 percent and at Homebase down by 2.0 percent, together contributing to a fall in overall group sales of 6.0 percent to £5.49 billion. Argos in particular, which is Britain’s second largest internet retailer (after Amazon), was hit by a massive slowdown in consumer spending on electronics. 

In February, John Walden, an American with a successful track record in internet retail, was hired to run Argos and inject a new perspective on the aged brand. He has since brought in retail strategy consultants OC&C to rethink the strategy but the word from chief executive Terry Duddy is that the process will not end in a mass closure of stores (although some analysts have differing views on that). 

More immediately, declining sales and profits have led Home Retail to shelve plans for a full year dividend, leaving shareholders to make do with the 4.7p paid at the half year. While the group has committed itself to reinstating a ‘sustainable’ pay out when conditions allow, analysts have predicted that could mean at least a two-year wait for investors. 

Inevitably, shares in the group slumped on the results, down by 13 percent to 87p – but the bigger picture is perhaps more of a concern. The shares were trading at 222p this time last year; at which point the management had just spent 12 months and £150 million buying back shares at well over 230p (occasionally as high as 270p). The timing of that buyback has since received hostile reviews in the City. 

What’s the bull case? 

Home Retail’s supporters have argued that the group’s efforts to develop its ‘multi channel’ sales strategy will mean that it is well placed to capitalise when the economy improves. Unlike its internet-only rival Amazon, 90 percent of Argos sales involve a store in some way.…

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Tesco PLC (Tesco) is a retail company. The Company is engaged in the business of Retailing and associated activities (Retail) and Retail banking and insurance services. The Company's segments include UK & ROI, which includes the United Kingdom and Republic of Ireland; International, which includes Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand, and Tesco Bank, which includes retail banking and insurance services through Tesco Bank in the United Kingdom. The Company's businesses include Tesco UK, Tesco in India, Tesco Malaysia, Tesco Lotus, Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco in China, Tesco Bank and dunnhumby. The Company's brands include Finest, Everyday Value, Chokablok and Technika. Finest and Everyday Value are the two food brands in the United Kingdom. The Company offers a range of personal banking products, principally mortgages, credit cards, personal loans and savings. more »

LSE Price
250.1p
Change
-0.1%
Mkt Cap (£m)
24,494
P/E (fwd)
14.4
Yield (fwd)
3.2



  Is LON:HOME fundamentally strong or weak? Find out More »


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