Argos sales prompt new retail gloom

Catalogue chain Argos sparked more concerns over the retail economy today after reporting a slump in demand for consumer electronics.

Home Retail Group, which also owns DIY business Homebase, said conditions were "more difficult and volatile" than it anticipated at the start of the year.

It blamed the bigger-than-expected plunge in Argos sales, which dropped 9.6% on a same-store basis in the 13 weeks to May 28, on weakness in consumer electronics, including televisions and video gaming.

While some of the decline was due to comparisons with demand for TVs in the run-up to last year's World Cup, shares in Home Retail and rivals including Dixons, Kesa and Game Group fell sharply today.

It is the latest gloomy update from the mass market retail business, which has felt the brunt of low consumer confidence and rising costs.

Chief executive Terry Duddy said: "Trading conditions, particularly at Argos, have proved to be more difficult and volatile than anticipated."

At Homebase, like-for-like sales were up 1.6% after sales of garden-related products including furniture, plants and exterior paints did well.

Freddie George, an analyst at Seymour Pierce stockbrokers, said the decline in Argos same-store sales was much bigger than his forecast for a 4% fall.

He said: "Argos remains under pressure from a weak consumer environment while the food retailers continue to grab share in its core markets."

Argos said the weak consumer electronics market accounted for around 75% of the reduction in first-quarter sales, although it said recent industry data showed it maintained its share of this market during March and April.

The fall was offset by strong sales of toys and seasonal goods such as garden furniture and barbecues as the good weather boosted demand.

Stock clearance and higher shipping costs also had an impact on margins at Argos, which recently announced an 18% decline in operating profits to £219 million for the year to February 28.

It has refurbished stores and extended its "click and reserve" collection service to users of its iPhone app, while also expanding ranges to reverse the sales downturn.

However, Mr Duddy said today: "The difficulty of this market, together with the volatility of overall sales, has made the balance of the year more difficult to predict."