Home Retail, Britain's No. 1 household goods retailer, said it anticipated a significant cut in its full-year dividend as it posted a further slump in sales at its Argos business over the Christmas trading period.
The firm said on Thursday the trading environment had been both "volatile and demanding" and forecast at year to end-February 2012 underlying pre-tax profit around the mid-point of the current analyst range of £78-125m.
Sales at catalogue-based Argos stores open over a year fell 8.8 per cent in the 18 weeks to 31 December, which spans its fiscal third quarter.
That compares with a second quarter fall of 8.6 percent, analyst forecasts of a fall of 8-10 percent and reflects the market decline in consumer electronics categories.
In October Home Retail forecast Argos' like-for-like sales would fall up to seven per cent over the full-year.
With British shoppers' disposable incomes squeezed by rising prices, muted wages growth and government austerity measures, store chains generally had a tough Christmas, using early sales to attract customers. They do not expect 2012 to be much better.
Argos, which is facing intense competition from supermarkets, specialists and internet players, has been particularly hard hit because its predominantly low-income customers are suffering the most severe squeeze on their budgets.
Home Retail, also owns Homebase, the UK's second largest do-it-yourself chain. Here third quarter like-for-like sales fell 2.6 per cent. That compared to analysts' forecasts of flat to down 5.4 percent.
Gross margins at Argos fell 50 basis points but were up 25 basis points at Homebase.
Shares in the firm, which prior to Thursday's update had lost 57 per cent of their value over the last year, closed Wednesday at 87.25 pence, valuing the business at £710m.
Home Retail also said it would close its UK homewares trial format HomeStore&More at a cost of £10m.