Argos decline hurts Home Retail Group

Shares in Home Retail Group fell almost 14 per cent on Thursday after it announced a steep decline in sales at Argos, its primary division, underlining the weakness of UK retailing.

In the 13 weeks to May 28, Argos’s like-for-like sales fell 9.6 per cent to £817m, with strong declines in sales of televisions and video games.

“Volatile” trading conditions meant that Argos’s like-for-like sales might fall by up to 7 per cent this year, said Terry Duddy, chief executive. In April he said the company was planning for a decline of up to 5 per cent.

Home Retail’s sales fell 3 per cent to £5.8bn in the year to February 26, it announced in April.

“It’s clear that consumers are continuing to tighten their belts,” Mr Duddy said. “This is really a big-ticket and consumer electronics issue.”

Across the sector, consumer electronic sales fell by a fifth in March and April, he said.

Argos’s weaker sales weighed on rival Dixons Retail, whose shares fell 8.9 per cent.

Argos had maintained its market share, Mr Duddy said, and continued to sell about one out of every five televisions sold in the UK.

However, television sales were down by about 20 per cent in the period, with video games sales falling by a quarter. Audio equipment sales had been in decline since February.

Ben Hunt, an analyst at Oriel Securities, said: “It is hard to see why trading will turn around; Home Retail is unfortunately a victim of both increased competition from supermarkets and the internet, as well as having direct exposure to a customer facing considerable pressures.”

There would be an easier year-on-year comparison in the second half of the year following the bad weather in that period last year, Home Retail said.

However, it expected difficult trading conditions to continue.

While the total number of downloads of the Argos iPhone app had reached 1.7m, it admitted it had seen little benefit from promotional campaigns this year.

Mr Duddy has been in direct control of Argos since Sara Weller, its managing director, resigned in April.

It was “unlikely” he would remain in this role, he said, adding that he hoped to make a decision by the end of this month.

Trading was better at Homebase, the group’s second division, which saw like-for-like sales increase 1.6 per cent to £458m, as garden furniture and plants sold well. Fitted bedroom furniture also saw strong sales.

However, total sales at Homebase fell 0.1 per cent, as it was also affected by slowing sales of big-ticket items.

Home Retail shares closed down 13.7 per cent at 174.5p on Thursday.

Source : Simon Mundy - FT.com
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