2nd UPDATE: Home Retail Shares Plunge As Argos Underperforms

10th Jun 2010 12:11

(Rewrites, adds CEO and analyst's comments, detail.) By Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Home Retail Group PLC's (HOME.LN) shares fell sharply Thursday as the U.K. general merchandise retailer said lower demand for televisions and video games at its Argos chain knocked same-store sales in the first quarter and competition intensified. The group also reiterated that it expects profits to be flat this year, and Chief Executive Terry Duddy warned the outlook for the economy remains "challenging and uncertain, with this quarter proving difficult in terms of consumers' willingness to spend." At 1059 GMT, Home Retail was the biggest faller in an overall higher FTSE-100, trading down 11 pence, or 4.5%, at 227 pence, valuing the company at GBP2 billion. At Argos, same-store sales fell 8.1% sales and total sales fell 5.2% to GBP889 million, while gross margin fell around 150 basis points. The group conceded that Argos underperformed, but against tough comparisons as flat-screen TVs sold very well last year at a time when rival DSG International PLC (DSGI.LN) was in the middle of an equity raising drive. This time, lower demand for televisions and video games contributed about two-thirds of the overall sales decrease. In the quarter, Argos' television sales fell 10% and video games sales fell 30%. Still, Duddy said he is hoping for a boost in TV sales ahead of the soccer World Cup which starts Friday. "We are expecting the World Cup to go well and are partly dependent on how well England do. We have some very sharp pricing and World Cup promotions," he said. On Wednesday, DSG, which owns the Currys and PC World chains, said TV sales last week surged 140% year-on-year. And in the week ending May 29, John Lewis Partnership PLC posted an 18.9% rise in electronics sales. Analysts said Argos's results were a worrying sign of increased competition, particularly from food retailers. "With a significant proportion of its shoppers using Asda and Tesco for food shopping, the roll-out of Argos-style, non-food kiosks by these two retailers is beginning to impact on Argos' sales," said Verdict Research analyst Matt Piner. Home Retail faces aggressive promotions offered by supermarkets that have expanded non-food ranges, and increased competition from electronic retailers like DSG, which has revamped its stores, and Best Buy Co. Inc. (BBY) which recently launched in the U.K. At the end of April, Home Retail warned the U.K. retail sector is set to remain difficult after it posted an 11% fall in pre-tax profit for its last fiscal year. The retailer, which said the majority of its high-frequency shoppers are in the lower-income, mass market segment, has been hard hit by the economic downturn in the U.K. over the past two years, which has crimped consumer spending. Meanwhile, in the quarter to May 29, home improvement chain Homebase posted a 1.4% annual fall in sales for stores open at least a year. Total sales fell 1.4% to GBP459 million and gross margin fell around 150 basis points, hit by negative currency effects and shipping rates. Earlier this month, Homebase rival B&Q, owned by Kingfisher PLC (KGF.LN), reported a 2.8% fall in same-store sales as cold weather hurt seasonal and outdoor product purchases. Many economists expect the upturn to be slow and fragile as the coalition government will be forced to cut public spending and impose taxes to cut the budget deficit. Home Retail targets pretax profit before exceptionals at around GBP290 million this year, against GBP292.9 million last fiscal year, and expects continued tight cost management to offset a weaker top-line. By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; [email protected] (END) Dow Jones Newswires June 10, 2010 07:11 ET (11:11 GMT)