A bad Christmas has added to longer term woes at the owner of Argos.
Before today, with its shares priced at 87p, the forecast dividend yield for Home Retail (LSE: HOME) stood at a massive 10%. However, few expected that dividend to hold up, and with today's release of Christmas trading figures, the grim reality has struck home.
Home Retail owns the DIY chain Homebase, which saw like for like sales fall by 2.6% in the last 18 weeks of 2011, largely due to falling demand of higher priced items -- and that's really not surprising, as discretionary spending on expensive stuff is off the agenda for most people.
But the real pariah in the portfolio has been Argos, which accounts for around 80% of the group's total sales. And Argos saw like-for-like sales fall by a massive 8.8% in the same period, which is pretty bad by any standards. The fall was blamed on poor demand for electronics goods, including video gaming gadgetry -- a market in which Game Group (LSE: GMG) is also suffering.
Margins were also further squeezed at Argos, by half a percentage point, due to higher delivery costs, and a number of stores are due to be closed when their current leases expire.
Dividends
Here's what the announcement said about the dividend...
"Given the ongoing uncertainty surrounding the UK economy we continue to plan cautiously with an ongoing focus on managing robustly both the cost base and the cash position of the group. With this in mind, the board anticipates a significant cut in the full year dividend for the current financial year."
Focusing on costs and cash, eh? It's a shame they didn't think of that when they reported poor results at the halfway stage, when the board doggedly decided to maintain its first-half dividend in what must now look like a very poor decision.
There was some light in the darkness, mind, as we were told that 41% of Argos sales now come via the Internet, up from 38% a year ago. But it is a mixed blessing. While online shopping is definitely the way to go in sectors where people don't need to "feel the width" before making their shopping decisions, it's disappointing that Argos still saw such a big fall in sales with such a large percentage coming online.
The future?
What's the best strategy for Argos now? I really don't know, but I do know that the current store format just isn't working any more. And it has dragged the Home Retail share price down by a further 4% today, bringing the past 12 months' fall to more than 50%.
But what do you think? Please do share your thoughts, below.
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