Argos feels the pinch as sales slump and revenue drops by 5%

COMPETITION from big supermarkets and a squeeze on low-income consumers has led to a slump in sales at Argos.

Home Retail Group, which owns Argos, said yesterday that like-for-like sales were down 8.1 per cent at the high street chain during the last quarter – leading to a 5.2 per cent drop in revenue in the 13 weeks to 29 May.

The group said the economic downturn was making customers reluctant to splash out – but it hoped sales for the next quarter would be lifted by the World Cup.

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Terry Duddy, chief executive of Home Retail Group, said: "Economic conditions remain both challenging and uncertain, with this quarter proving difficult in terms of consumers' willingness to spend.

"May, we believe, was better… and we've got other good World Cup promotions which we think will help us in the first part of the (second] quarter."

Total sales at Argos declined by 5.2 per cent to 889 million during the period – with sales of televisions and video games falling particularly hard. Freddie George, retail analyst at Seymour Pierce stockbrokers, said the Argos figures were "disappointing and quite lot worse than expected".

"The company has had two poor quarters with the like-for-likes almost double-digit down. Competition, we believe, is intensifying, particularly from the food retailers ramping up their internet offers and effort," George said.

Both Tesco and Asda are stepping up the competition in the home entertainment market – and are committed to expanding their non-food outfits Tesco Homeplus and Asda Living.

At Homebase, which is also owned by Home Retail Group, like-for-like sales declined by 1.4 per cent and by the same level on a overall basis to 459m.

Shares in the group yesterday closed down 4.08 per cent, or 9.7p, at 228.3p.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said sentiment towards the stock was unlikely to improve in the near term.

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"With the likelihood of an austere Budget pending, the current pressure on the company's higher margin products is likely to intensify," he said.

"Furthermore, the arrival of new competitors to the UK adds to an already fiercely competitive marketplace."

Caroline Gulliver, analyst at Execution Noble, said the results did not inspire confidence, particularly with the various economic challenges ahead.

She added: "We think trading could weaken further with an emergency budget, VAT rise and public spending review on the horizon."

The company has 747 Argos stores and 347 Homebase outlets.