Profits blow for Argos owner

Argos owner Home Retail Group today said annual profits dropped 13% as it revealed the boss of its embattled catalogue chain was stepping down.

The group, which also owns Homebase, said Argos managing director Sara Weller will stand down in June for personal reasons.

Home Retail chief executive Terry Duddy will head up Argos until a permanent replacement can be found.

The news came as the group - which had previously slashed annual forecasts - confirmed underlying pre-tax profits slumped to £254.1 million in the year to February 26 after falling sales at its two retail brands.

But Home Retail has pledged to continue investment in readiness for the consumer spending recovery, by developing its online offering, opening new stores and pressing ahead with Argos refurbishments.

Today's results add to a grim picture emerging from the sector, following figures from supermarket giant Tesco yesterday showing a 0.7% drop in fourth quarter sales.

Home Retail has already warned of an uncertain year ahead as consumers are squeezed by the January VAT hike and government austerity measures.

Argos saw like-for-like sales drop 5.6% in the last financial year, while Homebase saw same-store sales decline 0.3%.

The group is planning for a similar outcome in the current year, with falling sales at Argos and for Homebase sales to remain "broadly flat".

However, the group has been slashing costs over the past two years - making savings of £125 million - and said its strong cash position would help keep its investment programme on track.

Mr Duddy said: "Even in the current challenging economic environment both Argos and Homebase continue to strengthen their customer propositions by further investing in multi-channel initiatives, expanding choice, developing both ranges and services, enhancing product presentation in stores, in catalogues and online and delivering value to the customer."

Profits at Argos dropped 18% to £219 million, but Homebase profits rose 16% to £47.6 million.

So-called big ticket item sales were hit the most at Argos, with challenging conditions for furniture, televisions and video gaming products.

Homebase saw a different pattern as bathrooms and bedrooms were stronger than a year earlier in a sign of a homeowner trend to improve, not move.

Home Retail said Argos chief Ms Weller was leaving for health reasons and would not receive a pay off.

She has led the chain for seven years.

Mr Duddy also revealed a raft of plans to revive Argos sales, including a TV shopping channel that will launch this summer.

Argos will also expand its online offering by selling goods for other companies, starting with books.

Shares in Home Retail rose 5% as the group's results contained no further shocks, with the profits fall in line with recent guidance.

But analysts raised fears over the group's outlook.

Singer Capital Markets said they had concerns, "given cost pressures and the group's exposure to the UK mass market customer".

Nick Bubb of Arden Partners added Tesco's news yesterday that it is planning a major push in non-food after a disappointing year for clothing and electricals sales added to the pressure on Argos.

He said: "We do not share the board's confidence in the group's prospects and we expect that the dividend will be cut this time next year, after Tesco fights back in electricals and further develop their online threat to Argos."