Home Retail Group shares have tumbled 13% after the owner of Argos and Homebase issued the first pre-Christmas profit warning by a major UK retailer.
Home Retail’s chief executive, John Walden, said it was proving difficult to predict Christmas trading at Argos because of the uncertain impact of Black Friday, the 24-hour sales bonanza that takes place at the end of November that has become a fixture of the British retail calendar since it was brought over from the US.
Walden said trading at Argos was less predictable, adding that Black Friday was potentially disruptive to trading patterns. Home Retail’s concerns are shared by John Lewis, which has warned that Black Friday needs to be “reined in” because it pulls forward festive purchases and damages Christmas trading.
“We have planned to participate in Black Friday but there is uncertainty over its patterns. There is an unnatural collection of orders to fulfil on a single weekend,” Walden said. Home Retail said it expected annual profit before tax to be slightly below the bottom end of market expectations of between £115m and £140m.
Walden added that Argos also had problems in the first half of the year, despite an increase in wider group profits from £30.9m to £34.1m. Walden said first-half profit at Argos halved amid falling sales of electrical items such as TVs and tablet computers and also of summer goods. Argos also spent an extra £14m on new stores and hiring vehicles for the launch of its “fast-track” same-day delivery service.
Sales at Argos fell 1.5% to £1.74bn and sales at stores open a year or more dropped by 3.4%. Profit at the catalogue retailer, which makes up about two-thirds of Home Retail’s business, fell to £6.4m from £12m.
Homebase, which has closed 25 stores as sales are moved increasingly online, had a stronger first half, with its profit up from £27.8m to £34.3m.
Despite increased consumer confidence, the retail sector is grappling with fierce competition, the rise of online shopping and uncertainty among some customersas the government brings in more austerity measures, including cuts to tax credits.
Argos’s sales have suffered this year and it is trying to combat the rise of Amazon by offering same-day delivery and swapping stubby pens and laminated catalogues in stores for touchscreen computers while trying to attract more upmarket customers.
Asked about the implications of having to pay the “national living wage” to the group’s employees, Walden said the move would increase costs by about £15m a year, adding: “On the other hand, we are happy for our colleagues to make more money.” He said he had not yet finalised the group’s mitigation plans.
Walden said he analysed the government’s plan to withdraw in-work tax credits to 3 million of the poorest working families but did added, in an apparent criticism of the policy: “I am in favour of our consumers having more spending power.We haven’t evaluated the impact of that at this stage.”