Retailers are latest to feel wrath of markets as sales slide

Carphone sheds 11% on broadband worries w Home Retail Group hit by Homebase sales fall
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The Independent Online

The value of Carphone Warehouse and Home Retail Group plunged yesterday, as the focus of a volatile stock market turned on the retail sector. Shares in both companies fell sharply, as investors seized upon the most disappointing aspects of their respective trading updates.

Despite posting strong profits growth for the year to 29 March, shares in Carphone fell by more than 11 per cent after the mobile phone retailer said that sales had slowed at itsfixed-line broadband business since then.

Similarly, while Home Retail Group said its Argos business had performed reasonably well over the 12 weeks to the end of May, investors seized on a 12 per cent fall in sales at its Homebase operation. The shares fell by almost 4 per cent.

The comments of both retail groups will fuel the growing consensus that the consumer spending slowdown is spreading to all areas of the high street and is set to deteriorate further.

Carphone Warehouse's shares tumbled by 25.75p to 202p, while Home Retail Group's shares fell by 8p to 215.75p.

Carphone's chief executive, Charles Dunstone, warned that he expected slower growth from the company's fixed-line broadband business this year, as it posted pre-tax profits up 75 per cent to £216m and total sales up 12 per cent to £4.47bn for the 52 weeks to 29 March.

Carphone said it has added a lower-than-expected number of customers to its fixed-line broadband business since 29 March. It attributed this partly to the slowdown in the housing market, as people often switch providers when they move house, and increasing sales of mobile broadband packages. Mr Dunstone said: "If these trends continue, we expect lower revenue growth this year than previously indicated, compensated by improved margins."

Carphone Warehouse posted like-for-like retail sales up by 2.8 per cent for the year to 29 March. Mobile phone connections were up 15 per cent, but Mr Dunstone warned: "Everyone I talk to in the retail world is so gloomy and worried – you have to take a cautious view on the outlook on the rest of the year."

Home Retail Group's chief executive, Terry Duddy, attributed the DIY chain Homebase's tumbling like-for-like sales to "extremely weak" sales of seasonal-related products, such as garden furniture and barbecue equipment, during the poor weather in March and April, which contrasted with better weather over the same period last year. Seasonal-related categories, which account for about 40 per cent of first-quarter sales, tumbled by 20 per cent on a like-for-like basis.

Argos posted total sales up 4 per cent to £929m and flat like-for-likes. "The Argos performance is pretty resilient compared to a decline in the overall non-food market," said Mr Duddy. The catalogue retailer was boosted by robust sales of consumer electronics products, mobile phones and video game hardware, such as the Nintendo Wii and Playstation 3, and software such as Grand Theft Auto. However, furniture and homewares sales growth had slowed.

Meanwhile, Carphone Warehouse provided an update on its burgeoning partnership with the US electricals giant Best Buy. Mr Dunstone said the retailer was in more than 600 Best Buy stores in the US, and it would accelerate the roll-out. Last month the US company bought a 50 per cent stake in Carphone's retail arm for £1.1bn.

Mr Dunstone was also bullish about the launch of Apple's 3GiPhone in the UK and Ireland in July. "We are very enthusiastic the pricing that Apple and O2 are bringing to the market place makes it very comparable to other products," he said. "It is an absolutely superb phone and our exclusivity in terms of distribution gives us a clear advantage."