Argos falls flat as World Cup fever fails to lift TV sales

The World Cup has failed to stoke demand for new TV sets with Argos today reporting slumping sales ahead of the tournament’s kick-off tomorrow. The build-up to the last World Cup in Germany saw stay-at-home fans splurge on flat-screen TVs, with sales double that of the previous year. Terry Duddy, chief executive of Home Retail Group, which owns Argos, said this time around it had been a damp squib: “There has been nothing like the same demand we saw ahead of the 2006 competition.”

Like-for-like sales at Argos plunged 8.1% in the 13 weeks to 29 May. Profit margins were also affected because it cut prices to win custom while juggling higher freight costs and a weak pound. Four years ago Duddy described an “unbelievable” market for consumer electronics as a sun-soaked World Cup coincided with the shift from “big box” cathode ray sets to sleek flat-panel digital TVs. “We had fantastic sales during that period – it was a perfect storm for us in terms of TV and barbecues,” he said.

The disappointing figures weighed heavily on the shares which were the second-biggest faller in the FTSE 100 after BP, closing down 4% at 228p. Analysts took out their red pens after the company, which also owns Homebase, said it hoped to match, rather than better, last year’s profits of £293m.

Argos said video games and console sales were particularly weak – down 30% in the absence of a new gadget to excite consumers. Lower gaming and TV sales accounted for roughly two-thirds of the overall decline. But Duddy admitted some of the pain was self-inflicted as it lost share in both areas during the period.

In April Home Retail Group announced £70m plans to modernise the catalogue chain, in the face of an onslaught from supermarket groups Asda and Tesco. Argos’s fortunes contrast with those of Middle England’s favourite store, John Lewis, which has reported a strong run in its technology aisles with weekly sales up 19% at last count. Argos is still the biggest seller of TVs in the UK and Duddy said the quarter was set against a very strong performance last year when rival DSG was fighting for survival.

Duddy said data on the UK TV market for the first four months of the year showed sales were below last year’s levels – when the country was still mired in recession – and the jury was out as to whether the World Cup would be enough to nudge it back into growth. Investec analyst David Jeary described the retailer’s performance as a “curate’s egg, good in parts, less so in others”.

Homebase fared better than its larger stablemate, with like-for-like sales down 1.4% as demand for garden furniture and barbecues mitigated a drop in sales of plants and gardening tools amid cool spring weather. Last week market leader B&Q said underlying sales fell 2.8% in the 13 weeks to 1 May.

Duddy said Homebase attracted more affluent consumers who had benefited from big falls in mortgage rates. On Argos he added: “Mass-market customers have been having a tougher time, and feeling the pinch a little more.”

To make up for the sales shortfall at Argos, the retailer has embarked on a cost-cutting programme designed to save £20m. Last year Home Retail cut the hours worked by Argos’s predominantly part-time staff to save money and is expected to use the tactic again. “We have got some catching up to do at Argos but Homebase is ahead of the game,” said Duddy.

Analysts are worried that plans to cut public sector jobs and lift VAT will pile the pressure on Argos’s low income shoppers. “Argos is particularly exposed to the mass market consumer,” said JP Morgan Cazenove’s Gillian Hilditch. Bikes and car parts chain Halfords has made record profits of £117m, up 27%, despite the recession and confirmed it is on the lookout for more acquisitions.

Halfords has been boosted by strong sales of bicycles and cycling accessories – up 15% on the previous year. The retailer now accounts for more than 35% of the UK bicycle market. Like-for-like sales of car maintenance products – 30% of Halfords’ total sales – climbed 8%, boosted by extra demand caused by the winter weather.

Halfords has recently expanded into car servicing and MOTs, buying the 224-site Nationwide Autocentres business for £72m. Chief executive David Wild said he was still on the lookout for other deals and was monitoring about a dozen possible targets.

Wild said he was also braced for a rise in VAT: “It is inevitable. We just want to know when and how much. We have already ordered extra printing ink so that we can print out all the new shelf-edge labels. We will have 10,000 prices to change in 450 stores.”