Argos and Homebase firm cuts dividend as sales fall

Home Retail Group (HRG), which owns Argos and Homebase, has said it will significantly cut this year's dividend.

The news came as HRG reported sales fell sharply over Christmas.

At Argos, like-for-like sales - which strip out the effect of store openings - were down 8.8% in the last 18 weeks of 2011.

At DIY chain Homebase, weak demand for big ticket items dragged like-for-like sales down 2.6% - steeper than the 1.3% rate recorded over the last 44 weeks.

Catalogue sales specialist Argos - which accounts for 80% of HRG's total sales - has been hit by the squeeze from rising food and energy prices on its lower-income customers, who have been cutting back on electronics purchases in particular.

Profit margins at Argos were also eroded by a further half-percentage point, mainly due to higher delivery costs and spending on marketing.

The firm said there would be a number of store closures this year, taking its total number of Argos outlets down from the current 759 to below 751.

Profit margins at Homebase were more robust, rising a quarter percentage point, the firm said.

"In a trading environment that has been both volatile and demanding, Homebase has again seen more resilient sales," said HRG chief executive Terry Duddy.

Shares in HRG fell 5.1% in morning trading in London on Thursday following the announcement. Shares have fallen more than 60% since February last year.

The latest disappointing sales data follows a 71% fall in half-year profits reported last year.