Home Retail, Britain's No.1 household goods retailer, posted a bigger-than-expected drop in quarterly sales at its Argos stores as cash-strapped low income shoppers cut back on buying video games and televisions, according to Reuters. Shares in the company, which also runs the Homebase do-it-yourself chain, fell as much as 5.5 percent to a 13-month low of 224.8 pence in early Thursday trading. Retailers have been hoping for a boost in television sales ahead of the soccer World Cup, which starts on Friday. Argos, Britain's biggest seller of televisions, said TV sales were down 10 percent in the 13 weeks to May 29, although this was against a very strong performance in the same time last year when rival DSG was grappling with a refinancing. Chief Executive Terry Duddy also told reporters there were signs of a recent pick up in demand, echoing comments from DSG. "May, we believe, was better... and better through TV, and we've got other good World Cup promotions which we think will help us in the first part of the (second) quarter," he said. DSG, which runs the Currys and PC World chains, said television sales last week leapt 140 percent year-on-year. Sales at Argos stores open at least a year dropped 8.1 percent in the first quarter of its financial year, with gross profit margins falling around 150 basis points. Analysts had expected underlying sales to fall 3-5 percent and gross margins to decline by 100-125 basis points. The bad news was partly offset by a better-than-expected performance at Homebase, and Home Retail said it would cut a further 10-20 million pounds of costs at Argos to ensure full-year profits would meet its guidance for a flat outturn. However, analysts are worried about the group's exposure to low income shoppers, which look set to suffer fresh pain on June 22 when the government is expected to announce tax hikes and public spending cuts in a bid to rein in government borrowing. "Argos is particularly exposed to the mass market consumer and as such we expect negative sentiment regarding its prospects to persist," said JP Morgan Cazenove's Gillian Hilditch. FEELING THE PINCH Britain's retailers are struggling to emerge from a long and deep recession. A survey on Tuesday showed the like-for-like value of sales rose just 0.8 percent year-on-year in May after a 2.3 percent drop in April. Home Retail has been particularly hard hit because it sells discretionary goods to mostly low income shoppers, which have not benefited as much from big falls in mortgage rates than those with higher incomes. "Mass market customers have been having a tougher time, and feeling the pinch a little more," Duddy said. Shares in Home Retail, which also faces growing competition from supermarkets and online retailers, have lagged the STOXX 600 European retail index by 17 percent this year. At 0845 GMT, they were down 4.6 percent at 227 pence, valuing the business at about 1.9 billion pounds ($2.8 billion). Duddy said sales of video games dropped 20 percent in the first quarter, while hardware sales were down 30 percent. The news was better at Homebase, Britain's second-biggest home improvements chain behind Kingfisher's B&Q, where underlying sales fell a smaller than expected 1.4 percent. Demand for garden furniture and barbecues mitigated a drop in sales of plants and gardening tools amid cool Spring weather. Gross margins fell 150 basis points, in line with forecasts. Last week, Kingfisher posted a 2.8 percent drop in B&Q's underlying sales for the 13 weeks to May 1.
