UK retail sector sales are under the spotlight

Argos and Homebase parent Home Retail Group and department store chain Debenhams will report back from the retail sector next week, with consumer goods giant Unilever giving its latest view on the emerging market slowdown

Argos is starting a trial with eBay
Argos is starting a trial with eBay

Argos and Homebase parent Home Retail Group and department store chain Debenhams will report back from the retail sector next week, with consumer goods giant Unilever giving its latest view on the emerging market slowdown.

Argos and Homebase owner Home Retail Group will report a first-half sales recovery driven by better summer weather and amid Britain’s improving housing market. But the group’s profits will come under more pressure when it reports results for the six months to the end of August on Wednesday.

DIY chain Homebase posted a bigger-than-expected jump in like-for-like sales of 11% in the 13 weeks to August 31, while Argos rose 2.7%.

That helped underlying sales at the Homebase chain grow 5.9% across the whole of the first half. Like-for-like sales at Argos were up 2.3% during the six months.

However, margins at both businesses fell during the half after volatile weather between March and June hurt Homebase and Argos suffered as it expanded in the fiercely-competitive electronics space.

Home Retail is trying to reinvigorate the Argos high street chain, recently announcing a trial with eBay, which will allow customers of the auction website to pick up products at around 150 Argos stores throughout the UK.

Last year, chief executive Terry Duddy set out plans to grow Argos sales from £3.9bn to £4.5bn a year in 2018 in a digital push involving the closure or relocation of some stores and a cut in the print circulation of the catalogue.

Mr Duddy, one of the UK’s longest serving retail bosses, is standing down in July after 15 years with the group.

Analysts at N+1 Singer said Home Retail will benefit from current trends, but faces big challenges over the longer-term.

They said: “The business continues to benefit from near-term tailwinds including favourable product cycles and competitor weakness, however we continue to harbour concerns that greater structural change might be required at Argos and the Homebase refurbishment programme is overly cash-hungry.”

They see the group edging revenues up 2% to £5.59 billion during the year and expect adjusted pre-tax profits to climb to £97.5m from £91.1m.

Drugs giant GlaxoSmithKline will face more questions over a damaging bribery probe in China on Wednesday when it publishes results for the three months to the end of September.

The group admitted during the summer that some top executives appeared to have broken the law over a scandal in which funds were alleged to have been paid to doctors and health officials to boost sales and raise prices.

Glaxo has admitted the investigation will have an impact on the company’s performance in China, where it makes around 3% to 4% of its sales.Meanwhile the group is expected to underline its strong pipeline of drugs, after launching two new cancer drugs and one to tackle HIV.

Analysts at Panmure Gordon said its new respiratory drugs could be “game-changing”, but said it faces headwinds from exchange rates as well as the China probe.

They said: “It is not contentious to say that Glaxo has the best respiratory pipeline. The company has been through the majority of its patent expiries, big liability settlements and boasts a strong balance sheet and very little mergers and acquisition risk.”

Analysts expect the group to grow pre-tax profits to £1.8bn during the quarter from £1.7bn a year earlier. And despite the impact from China, they see revenues climbing to £6.6bn from £6.5 bn.

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