Argos

As the UK’s leading general merchandise retailer, Argos provides a highly successful and unique offer of choice, value and convenience.

Argos - operational review

Biggest ever catalogue launched in July. The latest Argos catalogue has 18,100 lines, some 1,500 or 9% more than last year. The number of ‘core’ lines has increased by nearly 1,000, so the vast majority of the 685 stores now stock-in around 10,800 lines for immediate collection. The number of Argos Extra lines also increased by around 600 to 3,700, while the number of home delivery-only lines was broadly flat at 3,700.

Additional product categories and ranges. As well as 5,000 brand new products, there are numerous new product groups including areas of pet care, technology, leisure and eco-friendly goods. There is the biggest ever range of Apple, Sony and Dyson products, and these have also been given their own ‘brand shops’ with dedicated pages in the catalogue. There is a new premium own-brand homewares range – the ‘Inspire’ collection – as well as new premium products from brands such as Dualit and Gaggia.

The wider Argos Extra choice in even more stores. There are now 252 Argos Extra fully stocked-in stores, representing 37% of the portfolio compared to 32% a year earlier. These stores all stock-in 14,500 lines for immediate collection. There are also 64 stores that now carry an edited selection of the Argos Extra range, in order to benefit from the increased sales participation when products are available for immediate collection. In any store where a particular Extra product is not stocked-in, it can be ordered-in by the customer for later collection. Delivery of these ordered-in products to stores is via Argos’ normal supply chain infrastructure.

Increased level of price investment. Argos has lowered prices in each and every edition of its catalogue since 1999. In the current catalogue, the overall price reduction is approximately 5% across the 8,000 reincluded lines, an increase on the 3% achieved in the previous Spring/Summer edition of the catalogue. Lower prices continue to be funded by the growing scale of the business and its ongoing supply chain initiatives.

Further growth of the separate ‘Home’ catalogue. Available in 253 stores, this now includes over 3,300 lines across 384 pages, and has 300 lines that are not in the main catalogue. Argos also now has four stores trialling furniture displays, with up to 34 room sets. Developments continue on the presentation of furniture displays that may be suitable for use across the wider store portfolio.

Multi-channel leadership continues. Check & Reserve, Argos’ free service that allows immediate collection of all 14,500 stocked-in products, continues to be its fastest growing channel with online reservations growing 43%. Check & Reserve represents 12% of total sales, with a further 12% being remote orders for delivery to home. The Internet overall represents 18% of orders and grew by 28%, with phone orders representing 6%. Home delivery overall is 24% of Argos’ sales, and was ahead marginally of last year notwithstanding more of the high demand consumer electronics products, particularly flat screen TVs, are stocked-in for immediate collection. Around half of all home delivery orders continue to be placed in-store.

Enhancements to www.argos.co.uk website. As part of a three-year e-commerce programme, Argos enhanced its website in September with a complete update on design and operation. The major changes included improved site navigation and greatly enhanced search functionality, as well as a new tabular format for product information and prominent links to buying guides. Other improvements include greater use of product imagery and brand logos to help category selection and filtering, and better messaging about reservations, delivery and other services which use designs that are consistent to the catalogue. Promotional areas are also more prominent, with new interactive banners and designs that are consistent to offline price cut communications.

Further convenience developments. Argos will approximately double the number of Quick Pay kiosks versus last year in readiness for peak trading. There will be a total of 1,700 across the portfolio, with the vast majority of stores therefore having at least one kiosk. Average sales participation in stores with kiosks has now reached 15%.

New stores extending customer reach. There was a net increase of five stores in the half; eight new stores opened, three were closed and one was relocated, bringing the total to 685 stores. Of the eight new store openings, four were in new catchments and four were additional stores in an existing catchment; seven of them were opened as Argos Extra stocked-in stores.

Argos - financial review

Sales in the 26 weeks to 1 September 2007 increased by 4.7% in total; like-for-like sales grew 1.4%. There was further strong growth in flat panel TVs and video games systems, on top of exceptional growth in the comparable period. There was also good growth in ‘satnav’ and mobile phones, however audio, VCR/DVD and landline phones continued to trend lower with the market. Seasonal categories saw a good performance in the first quarter but declined in the second quarter due to the adverse weather conditions. The contribution to sales growth from net new space was 3.3%, with expectations of a similar contribution in the second half of the year.

Gross margins were ahead by approximately 125 basis points, driven by ongoing supply chain benefits and foreign exchange benefits. Gross margin gains for the full year are expected to lessen due to a greater level of investment in lower prices in the latest catalogue.

Benchmark operating profit for the 26 weeks to 1 September 2007 grew 50% to £99.5m. Underlying operating cost inflation reduced slightly to approximately 3% from 4% last year. While there was a higher level of distribution costs as a result of the increase in overseas sourcing, other operating cost growth was held broadly flat. This was the result of continued cost control and a number of specific cost containment initiatives, together with leverage from the increase in new space in the comparable period last year. Such good levels of cost productivity are unlikely to be repeated through the peak second half trading period.

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