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No World Cup magic

WITH the start of the World Cup just days away, fans have been splashing out on flat-screen TVs. It’s strange then that the bigger-than-expected slump in Argos revenues was driven by weak TV sales. If the catalogue retailer can’t shift tellys in the run up to the year’s biggest sporting event, when can it?

This is not a weakness in the market as a whole. Currys, the electricals chain owned by DSGI, recently posted a 4.5 increase in like-for-like sales. That means Argos is facing structural problems.

These problems couldn’t come at a tougher time. The chancellor looks set to increase VAT to 20 per cent in an emergency Budget on 22 June, while Whitehall is readying the most swingeing public spending cuts in a generation. Consumers are unlikely to have renewed spending power any time soon.

With such tight margins, even a small drop in sales is a massive drag on profits. A one per cent like-for-like dip at Homebase and Argos translates into a £22m hit on profit before tax.

Nor is Home Retail Group particularly cheap. Execution Noble has the firm trading on 11 times its calendar 2011 earnings per share forecasts. DSGI, which trades on eight times the same multiple, is a much better buy.