Stock of the day 14/10/2015 – Home Retail Group PLC

There has been nothing comforting about Home Retail Group’s performance this year; will the owner of Argos and Homebase’s half year results next Wednesday be able to deliver a turnaround for the beleaguered stock?

Things actually started pretty well; after opening 2015 at £2.06 Home Retail quickly ascended to £2.19, just a smidge below its 2014 highs. The company’s troubles began, however, with its first statement of the year; its mid-January update wiped 6% off its price, as Home Retail warned of the cost of heavy Black Friday-discounting, as the November event caused Argos’ sales for the 18 weeks to January to rise a mere 0.1% compared to the 2% forecast despite a 45% increase in actual Black Friday sales. That may seem like a contradiction, but with shoppers satisfied with their bargains ahead of Christmas there was less need to return to the store, creating a skewed shopping pattern in what should be the company’s busiest period.

Following that January update the stock fell to £1.92, only to bounce back above £2 ahead of its end of year trading statement in March. Not that it stayed there for long; a 5% fall in Argos’ sales for the 8 weeks to the end of February, alongside a 0.9% drop in Homebase’s sales for the same period, caused the stock to plunge all the way to £1.60 by the start of April.


(Source: IT-Finance.com 14/10/2015)

Lateral trading around the £1.65 to £1.70 mark across the rest of that month then soon came to an end as Home Retail announced its full year results. A 14% increase in profits to £132 million, alongside a 0.8% rise in revenue to £5.7 billion, was overshadowed by the company’s admittance that it had struggled with its transition to a more online-focused business and its warning that it was looking at ‘only low levels of market-driven growth’ for its fiscal 2016.

This meant that, despite a brief bump for the Tory election win, Home Retail fell to £1.50 by the middle of June. Its first quarter results, though containing a worrying 3.9% fall in Argos’ sales, lifted the stock back above £1.60 with investors buoyed by a healthy 5.4% sales increase for Homebase and a 44% increase in Argos’ online sales. Home Retail then managed to loiter between £1.60 and £1.70 for the rest of June, July and the first half of August, only for the chaotic trading in the latter month to push it back below £1.50 by the start of September.

Yet more bad news came with its second quarter statement, with Argos once again damaging Home Retail’s stock price. A 5.9% increase for Homebase’s sales year-on-year couldn’t compensate for the 2.8% fall in Argos’ like-for-like performance, at least in investors’ minds, helping to push Home Retail to a 27 month low of £1.28 in the middle of September.

The market-wide recovery, alongside news at the start of October that Argos will offer same-day delivery in an attempt to improve its standing with the electrical goods-war it is currently losing against Amazon, helped Home Retail tickle the £1.50 mark, only to dip back to a current trading price of £1.45 (IT-Finance.com, 14/10/2015) as the FTSE itself began to fall.

Home Retail Group has a consensus rating of ‘Hold’ with an average target price of £1.71.