The depth of the consumer recession was laid bare yesterday when Argos owner Home Retail Group said the catalogue giant was suffering the worst sales in its history and posted a huge first-half loss of £437m.
Home Retail Group said that underlying sales at its Argos and Homebase businesses had fallen into "high single digit" declines for the period since 31 August. While Homebase has been struggling all year from the dire housing market, underlying sales down about 9 per cent at Argos are the worst since it was founded in 1973.
Terry Duddy, chief executive of Home Retail Group, said: "We have seen like-for-likes in negative [territory] in Argos that we have not seen before."
He added: "There is huge volatility. The worst weeks were in the middle of September, when the Lloyds TSB and HBOS deal went through."
Given the volatile trading, Mr Duddy said he had never experienced such a "lack of clarity" in terms of the group's ability to plan. He said the group was expecting negative sales over Christmas, was managing stock tightly and will reduce the number of temporary staff it takes on in the last quarter by 5,000.
For the 26 weeks to 30 August, Home Retail Group posted a £437m pre-tax loss, after exceptional charges, compared with a £169.3m profit for the same period last year. Some £542.3m of the exceptional charges was related to writedowns in the carrying value of Homebase assets and onerous lease provisions.
Home Retail's total sales were flat at £2.74bn, with like-for-likes down 3 per cent at Argos and a 10.3 per cent plunge at Homebase over the half-year.
Mr Duddy pulled no punches about the pressure on the finances of Argos's broad range of customers. He said: "70 per cent of UK households have shopped with us [Argos] over the last 12 months. Are they being hit hard? Yes." However, the average transaction value of between £20 and £30 has not changed.
Mr Duddy said the catalogue retailer will increase its Argos Value Range after doubling the number of lines, including a clock radio for £4.99 and a cordless kettle for £4.92. Argos is also piloting a number of products that can only be ordered on the internet and will not feature in its catalogue.
However, the recent appreciation of the pound against the dollar is set to restrict Home Retail's ability to cut prices on products in its Argos catalogue. The group sources about $1.8bn of goods in US dollars a year, largely from dollar-linked Asian economies, and every 1 cent rise in the US currency increases its buying costs by about £5m.
The group is cutting back on capital expenditure in the current financial year to less than £175m from £225m, largely driven by fewer store openings at Homebase. It will chop the number of Homebase stores it will open to between five and 10 from a planned 10 to 15, while Argos will be reduced by from about 30 to 25.
When exceptional items are stripped out, Home Retail made a benchmark pre-tax profit of £121.4m for the 26 weeks to 30 August.
Home Retail said that if the recent "high single digit" sales declines continue, its pre-tax profits for the financial year will be at the "bottom end of market expectations" of between £327m to £370m, with consensus of about £350m.
The group stressed its strong balance sheet, with a net cash position of £275m versus a year-end figure of £174m. It is to maintain its interim dividend at 4.7p.