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Home Retail Group falls as Argos sales disappoint

Home Retail Group (LON:HOME) has decided to significantly reduce its full year dividend after sales at both its businesses dropped during the crucial Christmas period.

In a trading update covering the 18 weeks to December 31, Home Retail reported that Argos sales slipped 7.8 percent to £1.72 billion, while sales at the Homebase home improvement store chain were down 2.5 percent at £475 million.

The decline in Argos sales was blamed on weakness in the consumer electronics market, particularly in video gaming and audio, which was in part offset by strong demand for laptops and tablets.

On the positive side, the share of online sales at Argos rose from 38 percent a year earlier to 41 percent, in part helped by the fast developing area of mobile commerce, said Home Retail.

At Homebase, sales of big ticket items were down, while all other product categories saw no change from 2010.

Despite the decline in sales, Home Retail said it expects its pre-tax profits for the full year to be in the middle of the projected range between £78 million and £125 million.

“We will continue to plan cautiously with an ongoing focus on managing robustly both the cost base and the cash position of the group while prioritising our investment in the ongoing development of our multi-channel capabilities,” said chief executive of Home Retail Group Terry Duddy.

Broker Seymour Pierce has decided to downgrade the stock from “hold” to “sell” in response to the statement, while also cutting its target price from 115 pence to 75 pence.

Seymour Pierce analyst Freddie George is concerned that Argos will continue to be impacted by the challenging economic environment, while also facing pressure from increasing market competition, particularly from the food retailers.

The update disappointed investors as shares in Home Retail dropped 4 percent to trade at 83.6 pence this morning, valuing the group at £680 million.



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