Oct 20, 2011
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Argos owner tells government to help consumers

Oct 20, 2011

Terry Duddy, CEO of Home Retail Group
LONDON - Cash-strapped shoppers need help from government, and they need it now, the boss of Britain's No. 1 household goods retailer, Home Retail, said after first-half profit at his firm slumped 70 percent.

Terry Duddy, chief executive of the Argos owner, said on Wednesday consumers needed more direct aid than the Bank of England's recent move to revive the faltering economic recovery with a fresh dose of quantitative easing. "I do think they (consumers) need more help. I think it's becoming even more clear what a difficult position we're in and how difficult it is for the consumers," he told reporters.

He called on Chancellor George Osborne to use his statement in November to provide tax relief at lower income levels, such as increasing the threshold on income tax to 10,000 pounds.

"For this business, and I think in general, it would be a good thing to be able to give people more pounds in their pocket who are in that lower income or lower middle income bracket."

Duddy's comments were echoed by Mark Newton-Jones, Chief Executive of Shop Direct, the UK's largest online and home shopping retailer, which posted a narrowing in year losses on Wednesday.

"It's incumbent on government to start to shape a better future with good news," he told Reuters.

As well as income tax relief for the poor, Newton-Jones wants a cut in VAT sales tax and stamp duty exemption measures for first time buyers to stimulate the housing market.

"60-70 percent of GDP in this country is based on consumer spending in various areas. Without that being stimulated we end up in a trough and can't get back out of it," he added.


Shares in Home Retail, which also owns Homebase, Britain's second biggest do-it-yourself retailer, fell 13 percent after the firm said recent trading had remained grim.

"As we now enter our busiest trading period market conditions remain both weak and volatile, and in these early weeks of the second half we have not seen the improvement in sales that we had anticipated," said Duddy.

He reckons sales at Argos stores open over a year could be down as much as 7 percent over the year to end-February 2012, having fallen 9.1 percent in the first half, mainly on the back of plummeting sales of consumer electricals.

Panmure Gordon analyst Philip Dorgan cut his 2011-12 pretax profit forecast by 25 percent to 96 million pounds. In 2010-11 the firm made 254 million pounds.

Retailers are generally struggling as rising prices, muted wages growth and government austerity measures force shoppers to rein in spending on non-essential items.

The squeeze on household finances was starkly illustrated on Tuesday when official data showed inflation hit a three-year high in September driven by soaring gas and electricity bills.

Home Retail, which is facing intense competition from supermarkets, specialist and internet players, has been particularly hard hit as its predominantly low-income customers are suffering the most severe hit to their budgets.

The firm made an underlying pretax profit of 28.3 million pounds in the six months to August 27. That compares with analysts' average forecast of 30 million pounds, according to a company poll of nine, and 94.7 million pounds made in the same period last year.

Operating profit at Argos crashed to 3.4 million pounds from 54.4 million pounds. At Homebase it fell to 29.9 million pounds from 46.2 million pounds.

Total first half sales, reported last month, fell 6 percent to 2.57 billion pounds.

Home Retail, which ended the period with net cash of 200 million pounds, maintained its interim dividend at 4.7 pence. However, most analysts expect the final dividend to be slashed.

Duddy is under pressure from some analysts to dramatically scale down Argos's 754-store portfolio and reshape its catalogue offer. However, he is adamant the firm's multi-channel strategy is the right one.

The CEO is looking for growth from TV shopping, mobile phone applications, and entry into new product areas such as books and children's wear.

He also announced on Wednesday a joint venture with Chinese appliance maker Haier Electronics to develop a multi-channel retailing business in China.

Home Retail shares which prior to Wednesday's update had already lost 45 percent of their value over the last year, were down 15.7 pence at 104 pence at 1:46 p.m., valuing the business at about 860 million pounds.

"Management has stated that it has kicked the tyres, looked under the bonnet, taken the engine to pieces, put it back together and decided that it doesn't need to change strategy," said Panmure's Dorgan.

"We take a more simple view. If it walks like a duck, quacks like a duck, then it's a duck."

By James Davey

(Editing by Paul Sandle and Hans-Juergen Peters)

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