Argos owner Home Retail Group cuts profit forecast

The group said recent trading at Argos had been difficult and volatile

A drop in sales at Argos has prompted the chain's owner Home Retail Group to lower its profit forecast for the year.

The group said it now expected pre-tax profit to be between £250m and £255m. In January it had forecast profit to be "around the mid-point of our previously guided range of £250-275m".

Like-for-like sales at Argos fell 4.6% in the eight weeks to 26 February, with video gaming and the audio market hit.

But like-for-like sales at its Homebase stores rose 3.8%.

Growth in "big ticket" items was driven by bathrooms and bedroom furniture, the group said.

"There are clear signs of further pressures on consumer spending, with recent trading conditions, particularly at Argos, proving to be more difficult and volatile than we anticipated," Home Retail Group chief executive Terry Duddy said.

"Against the backdrop of the challenging economic environment, and taking into account our most recent trading, we are now planning with increased caution for the year ahead."

Home Retail Group shares were trading down 8% at 193.5p in morning trading.

"Sales promotions are eating into the profit margin at Argos, whilst structural changes in the former growth arena of gaming - consumers are increasingly downloading video games directly - is also taking its toll," commented Keith Bowman from Hargreaves Lansdown Stockbrokers.

"In all, whilst the business model at Argos continues to lend itself to the lower cost internet sales channel and Homebase benefits from homeowners' reluctance to move - preferring to renovate - management, for now, appears devoid of turnaround initiatives."