Poor Christmas at Argos prompts job cutbacks
Saturday 17 January 1998
Argos shares fell by 12.5 per cent yesterday after the company said like for like sales in the five weeks to 27 December fell by 1.5 per cent. The company blamed a poor performance in toys, electricals and the jewellery/clocks and watches category. Sales in these three ranges, which account for half of Argos' sales in the run-up to Christmas, fell by five per cent on last year. Argos shares closed 63p lower at 442p. They stood at almost 800p little more than a year ago.
Analysts said Argos had also suffered from a revitalised Woolworths which competes directly against it in areas such as toys. The figures were particularly disappointing, as Argos had added more sales staff this year to prevent the long queues that caused the company problems last Christmas, analysts said.
"It has raised significant concerns both in the City and within the company itself," said Ashley Thomas at SG Securities. "The fact that they are planning a series of initiatives suggests the tougher trading conditions are here to stay."
Argos is just the latest in a string of downbeat announcements from retailers this week, suggesting that the early post-Christmas optimism form the high street was mis-placed. There have been profits warnings from Laura Ashley and La Senza as well as poor figures from Sears and House of Fraser.
Some said the downbeat trading update would increase pressure on the company to return its cash pile to shareholders rather than gear up for an acquisition. "Given they are operating in a mature market, people may like to see some cash coming back," said one analyst.
Argos had average net cash of pounds 137m last year. It returned pounds 93m to shareholders in 1996 through a 40p per share special dividend.
As part of cost cutting programme designed to free up resources for investment elsewhere in the group, Argos is to cut 100 jobs at its Milton Keynes head office and 130 at its Welwyn Garden City warehouse, which is being closed. However, the company is to create 1,000 jobs this year as part of a programme to open 31 new shops.
It also plans to pilot a home shopping service in August. Under this system, any product in stock can be ordered and paid for over the telephone and delivered to the customers' home or picked up at the shop within 24 hours of ordering. Argos home shopping service will be rolled out nationally in 1999. The service is expected to be loss-making this year but to turn in a profit in its first full year of operation. Additional costs will be incurred for new telephone systems, a call centre and a delivery network.
Analysts downgraded this year's profits from pounds 146m to around pounds 125m, after exceptionals. For the following year some have downgraded from pounds 165m to pounds 140m.
The company said 1997's profits would be affected by investments in its new Dutch business, costing pounds 3m, and pounds 7m of additional provisions related to the cost-cutting exercise. This is expected to reduce costs by pounds 7m a year.
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