Parent company Home Retail Group beats benchmark pre-tax profit predictions, as Homebase and Argos both post positive sales growth and ramp up digital side of the business.
Home enhancement chain Homebase posted a like-for-like (LFL) sales increase of 5.9% for the year ended March 1, 2014, with total sales up 4.1% to £1,489.2m. Despite what the retailer describes as "a challenging start to the year", improved weather in Q2 boosted sales of seasonal goods, annualising against poor weather throughout summer last year. Big-ticket sales were also ahead of the previous year, while remaining categories were described as "broadly flat".

Homebase's gross margin took a slight nosedive, down 100 basis points, impacted by promotional activity in Q1 and the strong performance of margin dilutive seasonal and big-ticket goods.

The retail chain continued to exit stores as lease renewals came up, in line with plans to revise its portfolio over the next five years, and closed a total of 13 stores, reducing its selling space by 500,000sq ft. Closure of these stores, which were often unprofitable or untenable, is likely to have helped the retailer's operating profit figure, which was up 71% to £18.9m for the year. Homebase explained that cost-saving exercises helped offset a 9% increase in operating and distribution costs, as the chain continued the roll out of its new store format.

A net credit of £2.1m as also recorded in the year, relating to store impairment and property revisions. The net credit principally reflects a £3m reversal of previous impairment provisions arising on Homebase's store portfolio, combined with a £900,000 net charge in respect of property provisions.

Homebase has a further 65 store lease renewals or break clauses due. Meanwhile, the examinership process of its operations in Ireland resulted in two store closures and a rent reduction across the remaining 13 Irish outlets. Homebase added that it will continue to examine the opportunity for store closures, relocations or downsizes in the country.

Homebase completed a further 15 store refits over the course of the year, including Ruislip and Solihull, bringing the branches in line with its new proposition.

Its performance last year helped parent firm Home Retail Group (HRG) exceed profit predictions, posting a benchmark pre-tax profit increase of 27% to £115.4m. Sales for the group, which also owns Argos, were up 3% to £5,663m.

Argos reported a 3.3% LFL sales increase to £4,051.1m for the year, with its benchmark operating profit up 12% to £112.3m. Internet sales continued to skyrocket and now represent 44% of total Argos sales, boosted by a strong performance from mobiles and tablets, which alone grew by 89% and now represents 18% of total sales.

HRG is keen to reposition Argos' channels for a digital future and has enhanced its offer across both online and mobile commerce. The retail chain trialled six digital concept stores during the Christmas trading period and plans to extend the trial of the concept to an additional 25 stores, based on encouraging customer feedback.

HRG chief executive John Walden said the digital stores, "seek to define a new role for an Argos store in the future." The digital stores showcase a number of new technologies, including tablet-based browsers to replace the original laminated catalogues, fast-tracked product collection and a voice-driven picking system that speeds up the process of retrieving customer orders.

Online sales traffic also helped Homebase grow its multi-channel sales, which were up 53% year-on-year and represent approximately 7% of total Homebase sales. During the coming year, Homebase will launch a new website, which will be supported by new Android and Apple apps.

Mr Walden said: "Home Retail Group is embracing the connected world, in which digital technologies are dramatically altering the way people communicate, learn, entertain and shop. Traditional retailing in particular is fundamentally changing. Customers continue to shift their shopping habits, and most of them interact with digital devices at some point in their shopping journey. They have come to expect multiple shopping channels, large product choice, low prices, and flexible options for obtaining their products, including collection in a local store and home delivery. Home Retail Group believes that it can innovate and lead in this changing market, and thereby secure for itself long-term business growth."