The recent warm weather has provided a welcome boost to Homebase as the DIY chain shrugged off last year’s dismal performance to report strong sales of barbecues and other outdoor equipment.
Home Retail Group, the owner of Argos and Homebase, which plunged into the red last year, said today that both its businesses had achieved better-than-expected sales in the 13 weeks to May 30 after snatching market share.
However, the company said that it remained cautious over the impact of rising unemployment and it expected margins to remain under pressure for the rest of the year due to the weak pound.
Terry Duddy, chief executive of Home Retail Group, said that while lower mortage costs meant consumers had more money in their pockets, he and his colleagues were “not great subscribers to the green shoots theory at the moment”.
He said that while Homebase in particular saw its performance in gardening and outdoor products benefit from the weather, some customers had simply brought forward purchases they would have made anyway. “If you buy your lawnmower in April your’e not going to come back in May and buy another one.”
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He said: “At this early stage of the financial year we continue to plan cautiously, with our trading focus remaining on driving cash gross margin and achieving further cost efficiencies.”
Homebase reported like-for-like growth in the quarter of 3.8 per cent, a marked contrast to the 10.4 per cent decline reported last year.
It said that “seasonally related categories” had achieved double-digit growth, despite a decline in May. “The weather patterns resulted in year-on-year demand being particularly strong in March and April,” it said.
Mr Duddy said the dip in May was partly due to strong comparables in the same month last year.
The chain also enjoyed strong kitchen sales during the quarter, although overall the gross margin at Homebase fell by 2.5 percentage points due to increased Easter promotions. It said currency movements would hit the margin through the course of the year, making imported goods more expensive.
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Total sales at Homebase rose by 5.8 per cent to £465 million, helped by three store openings, taking its total to 348.
At Argos, where electricals and home products account for more than half of turnover, total quarterly sales rose by 0.9 per cent to £937 million, as it opened five new stores, taking its total to 735.
Like-for-like sales fell by 2.8 per cent — better than the 4 per cent fall the market had forecast — as a challenging market for furniture and homewares offset good growth in consumer electronics, particularly TVs, and toys.
Argos suffered a slightly worse-than-expected 0.75-point margin decline on the back of promotions and sales mix, and as with Homebase there will be further pressure from currency movements.
The group said that it was on target with its £50 million cost savings programme, of which £35 million will come in the current year, partly from redundancies.
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The shares were down 1p at 265p in lunchtime trading.