Argos is feeling the squeeze

UNDERLYING sales growth has shuddered to a halt at catalogue stores chain Argos as the consumer spending squeeze takes its toll. It is the first time in six years that the chain, one of the retail sector's brightest stars, has failed to deliver like-for-like sales growth, although new store openings pushed total turnover for the six months to 31 March ahead by 5%.

The disappointing performance piles on the gloom for the retail sector, which has been hit by a raft of poor trading statements and a number of profits warnings in recent weeks.

These include a further fall in sales at Marks & Spencer, a second shock profits warning from Boots and a 30% profits crash yesterday at JJB Sports.

Argos parent company GUS, which also owns DIY chain Homebase and credit checking company Experian, sees no let-up in the tough trading conditions, and warned that retailers are facing higher costs in areas such as rates, wages and energy.

'Clearly Argos and Homebase are not immune from this downturn in demand or these cost pressures,' said a spokesman. But both businesses will continue to deliver 'sustainable growth', underpinned by big cost savings in the supply chain.

Prices at Argos have been cut by an average of 6% in the past year, and there was good demand for consumer electronics, digital cameras and mobile phones. But bigger-ticket furniture and white goods were weak. 'People just haven't got enough money to spend at the end of the week once they have paid all their bills,' said GUS finance director David Tyler.

Argos, headed by Terry Duddy, will continue to cut prices and plans to open a further 35 stores this year, adding to its 592-strong chain. The disappointing second-half sales performance leaves its like-for-like sales ahead by 3% for the year to end-March, and the chain again outperformed its competitors, Tyler said.

There was also a slowdown at Homebase, where underlying sales growth slowed from 3% in the year to the end of February. Further good progress has been made in improving core ranges and customer service.

Experian enjoyed its best-ever half year, pushing sales ahead by 18% at constant exchange rates. For GUS as a whole, profits are expected to be in line with forecasts of £925m-£940m, up from £827m.