Argos profit dive heightens closures speculation

Home Retail Group denied today that it would be forced into large-scale closure of its Argos stores, after revealing a massive dive in annual profit.

Argos profit dive heightens closures speculation

Pre-tax profit at the group, which also owns Homebase, plunged 66% to £90.2m in the year to February 25 2012. Like-for-like sales at Argos were down 8.9% over the year, largely because of weakness in the consumer electronics market, and 2% down at Homebase.

HRG has been fighting rumours that it plans to close a large number of Argos stores. Today, it confirmed plans to shut 10 Argos outlets in the current financial year, but chief executive Terry Duddy said that only seven of the 750 stores were loss-making and that it would not make financial sense to consider widescale closures. HRG says stores are crucial to Argos’ multi-channel business model, with almost 90% of all sales involving a store.

However, around 230 store lease renewals or break clauses are due in the next five years, and analysts expect to see the size of the Argos estate substantially reduced.

Patrick O’Brien, lead retail analyst at Verdict Research, believes Argos should now look at downsizing its stores.

“Argos continues to refuse to drastically reduce its store portfolio,” he said, “making the point that sales at its 100 worst-performing stores would have to fall by 25% for them to be loss making, and to close them all would cost £125m in lease liabilities. Argos is therefore hampered with a less than optimal store portfolio.

“While it makes a strong case for having a comprehensive store network, Argos needs to focus on smaller format stores, as people are less interested in using its stores to browse – an increasing number use online channels to reserve stock ahead of collection at the stores.”

John Walden, Argos’ new managing director, has reportedly called in consultants to conduct a review of the beleaguered business.

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