Bumpy trading at Argos knocks retail stocks

 

Shares in Home Retail plunged 11% as the Argos owner admitted trading conditions were 'more difficult and volatile' than expected.

High Street Argos

Disappointment: Sales of consumer electronics take a hit

Like-for-like sales at Argos tumbled 9.6% in the 13 weeks to May 28. Total sales, including new store figures, were down 8.1% at £817m.

At the company's DIY business Homebase, like-for-like sales rose 1.6% as sales of garden-related items such as furniture, plants and exterior paints held up.

Home Retail's stock shed 22.9p to 179.4p, and its gloomy bulletin had a knock-on effect on other shopowners.

Dixons Retail slid 12% or 2.26p to 17.04p, while Kesa Electrials dropped 5.2p to 137.5p. Marks & Spencer is off 4.4p at 366.8p and Kingfisher is down 1p at 272.9p.

Home Retail's chief executive Terry Duddy said: 'Trading conditions, particularly at Argos, have proved to be more difficult and volatile than anticipated. Despite this the group has gained or held market share in its businesses.'

Argos was affected by 'a further significant decline' in the consumer electronics market and the difficulty in this market, combined with overall sales volatility, made it hard to predict how the rest of the year would play out, he acknowledged.

Mr Duddy hailed the outcome at Homebase, which was helped by the good weather during the quarter.

Home Retail recently reported a 13% fall in underlying pre-tax profits to £243.1m in the year to February 26.

View from the City

'First quarter trading at Argos has proved much worse than even the most cautious expectations with like-for-like sales declining by a worrying 9.6% against a fear of -6%,' said broker Oriel Securities.

'It seems that consumer electronics are the real culprit, but Argos alleges it has maintained its market share which suggests that both Dixons and Kesa will also have been weak.'

The disappointing result means pre-tax profit forecasts for the current financial year are likely to fall from around £210m back to around £190m, the broker predicted

'With Argos continuing to struggle to find its place on the High Street and margins under real pressure at Homebase, we stay firmly with our sell recommendation,' it added.

Investment bank Espirito Santo commented: 'In terms of read-across for the sector as a whole, the statement isn't positive although we would note that the Argos weakness seems to be confined to electricals.

'It seems as though the low income demographic is under most pressure. We continue to think that older, higher income consumers will outperform this year.'

James Dilks-Hopper of broker Numis said: 'In light of recent industry data highlighting the weakness in big ticket items and the tough upcoming World Cup comparatives, we continue to believe Home Retail is one of the more susceptible companies to weak consumer spending in the sector.'