Homebase value slashed by £542m
- 00:02:19
- ITN
Homebase value slashed by £542m
Home Retail Group, the owner of Homebase, has slashed £542 million from the value of the struggling DIY chain. The group, which also owns Argos, warned of the impact of recent financial turmoil on profits and said it would cut costs and investment in Homebase as the economic outlook deteriorates. Home said like-for-like sales had fallen by "high single-digits" at both chains since the end of August with chief executive Terry Duddy saying trading had "worsened in the turbulent recent weeks". Home's underlying profits fell 19 per cent to £121 million in the six months to August 30. But the inclusion of the Homebase writedown plunged the company to an overall pre-tax loss of £437 million. At Argos, where operating profits fell by £14 million to £85.5 million, "the ability to lower customer prices in most categories will be increasingly difficult," Home said. Operating profits at Homebase tumbled by 37 per cent to £29.5 million after a 10.3 per cent slide in like-for-like sales over the six months. Mr Duddy warned: "If these conditions continue through our peak trading months of November and December, the profit outcome for the year would likely be around the bottom of current market expectations." The group painted a bleak picture of trading prospects as consumers struggle with the rising cost of essentials such as food and energy bills, as well as falling house prices and unemployment fears. Next year will be just as bad - if not worse - the firm added. "The worsening in the outlook for the economic environment suggests that, for consumer spending in Home Retail Group's product markets, 2009 is likely to be at least as challenging as 2008." Customers could also be hit by higher prices going forward as the business struggles to keep a lid on rising product costs and the impact of a weaker pound, Home added. Nick Bubb, Pali International retail analyst, said: "The revelation of a 'high single digit' like-for-like sales decline in the last seven to eight weeks is no surprise for the struggling Homebase, but it is a bit of a shocker for Argos, which is a better and more resilient business. "As well as falling big-ticket sales, Home faces significant gross margin pressure in 2009/10 from the collapse of sterling against the dollar." At the end of August, the group had 718 Argos stores and 345 Homebase outlets. The group said it will now open just a handful of new stores each year - and only when it is sure of a return on its investment.
ITN | October 22, 2008
