Argos plunges on new warning

Argos, the once high-flying catalogue retailer, saw its shares plunge 24.5p to 623p yesterday after issuing its second profit warning of the year. The group said one-off costs and higher interest charges of around pounds 3m resulting from the pounds 127m special dividend paid last year would mean that profits would fall in the first half of the current year.

However, it also unnerved the market with a new warning that it was seeing sluggish or even negative growth in a number of markets. In January, the group saw its shares crash 110p, also to 623p, after it revealed that sales had grown by a disappointing 4 per cent, like-for-like, in the month before Christmas Eve, its top selling season.

Yesterday, it said that like-for-like sales had accelerated to 5.5 per cent in the first 18 weeks of 1997, a rise of 12 per cent in unadjusted terms.

Analysts had been braced for further difficulties after Argos said in March that higher paper prices and distribution costs would make it difficult to improve on last year's record pounds 31.8m interim profits. Even so, many full-year forecasts were trimmed yesterday. Sean Eddie at NatWest Markets clipped his by pounds 7m to pounds 153m, some pounds 12m above 1996 profits, and voiced concerns about a possible slowdown in the group's growth rate.

It was disappointing to see prices being "sharpened" at a time of depressed volumes while, more importantly, the group was also adding to overheads, he said. "They have geared themselves into needing more sales at the same time as sales are proving more elusive."

However, Nick Hawkins, an Argos follower at Merrill Lynch, suggested the problems were more general: "The lack of consistency and predictability in sales at the moment is of some concern. If things are not nice and stable and solid at this stage in the cycle, there could be more worries ahead." But he added: "Nobody is pointing the finger at Argos, it's all about the consumer."

The Argos warning came at the retail group's annual general meeting yesterday. Sir Richard Lloyd, chairman, told shareholders that, despite the depressed state of some of its markets, it continued to believe it was growing its market shares. As usual, the final outcome for the year would be much more heavily dependent on the final quarter than on the first half. "Your board is expecting a stronger second-half performance compared with 1996 and believes the group is well positioned to demonstrate continued growth in 1997 as a whole."

He said the group was continuing with its strategy to boost sales, fundamental to which was "setting the high street agenda". Of product lines reappearing in this year's catalogue, 94 per cent are included at the same or a cheaper price, which had resulted in a 2 per cent reduction in average selling prices.