Home Retail posted a bigger than expected drop in first-quarter sales at its catalogue-based Argos stores, hit by a drop in demand for video games and televisions.
The group said the bad news was offset by a smaller than forecast decline in sales at its Homebase do-it-yourself chain and it was still aiming to deliver flat profits over the full financial year, helped by cost cutting.
"Economic conditions remain both challenging and uncertain, with this quarter proving difficult in terms of consumers' willingness to spend," chief executive Terry Duddy said.
Britain's retailers are struggling to emerge from a long and deep recession, and many fear that steps to rein in government borrowing, like higher taxes and public spending cuts, could hit consumer demand in the months ahead.
The British Retail Consortium said on Tuesday the like-for-like value of sales rose just 0.8 per cent year-on-year in May after a 2.3 per cent drop in April.
Home Retail shares have lagged the STOXX 600 European retail index by 17 per cent this year, hit by concerns it is suffering from a step up in competition from supermarkets and online retailers.
Sales at Argos stores open at least a year dropped 8.1 per cent in the 13 weeks to May 29th, with gross profit margins falling around 150 basis points.
Analysts had expected underlying sales to fall 3-5 per cent and gross margins to decline by 100-125 basis points.
Total sales at Argos fell 5.2 per cent and Home Retail said around two thirds of that was due to a weak video games market and to a drop in demand for TVs against a strong performance in the same time last year.
Like-for-like sales at Homebase, Britain's second-biggest home improvements chain behind Kingfisher's B&Q, fell 1.4 per cent, slightly less than analysts' expected, with gross margins down 150 basis points.
"For Homebase, this quarter represented a good outcome to its peak trading period," Mr Duddy said.
Last week, Kingfisher posted a 2.8 per cent drop in underlying sales in the UK and Ireland for the 13 weeks to May 1st.
Reuters