LONDON Home Retail, Britain's biggest household goods retailer, said a cold spring hit sales of outdoor toys and garden furniture at Argos, sending its shares tumbling almost 9 percent to a three-month low.
"Seasonal categories have been a lot weaker than we expected them to be, not surprisingly given the poor start to the seasonal trading period," Chief Executive Terry Duddy told reporters on Thursday.
"It was reversal of the difficult spring last year, where actually March was much better and this year it snowed."
Sales of outdoors toys, barbecues, garden furniture and lawn mowers were hit by the poor weather, he said, though demand for tablet computers remained strong and TVs returned to growth.
The firm said sales at Argos stores open over a year rose 1.9 percent in the 13 weeks to June 1, its fiscal first quarter, while the gross margin - a measure of profitability - was squeezed by about 0.75 percent of a point by the higher proportion of lower-margin electronics in the mix.
Analysts on average were expecting growth of 3 percent, according to a company poll. It followed a 5.2 percent rise in the final eight-week trading period of the company's 2012-13 financial year.
Shares in Home Retail, which have more than doubled over the last year after slumping in 2011, were down 8.7 percent at 131.7 pence, valuing the group at 1.07 billion pounds ($1.68 billion).
MARKET SHARE GAIN
Britain's retail sales saw the biggest fall in a year in April, with sales volumes down 1.3 percent. The Office for National Statistics said the cold weather hit sales of barbecue food and garden furniture especially hard.
Investec analyst Bethany Hocking said the Argos numbers were a touch below consensus, while the performance of the group's DIY chain Homebase was significantly better, giving further evidence that it was winning share from rival B&Q.
She stuck with her "buy" recommendation, but reduced her target price to 159 pence from 173 pence, and noted that it was a high-risk stock.
"Our 'Buy' case is based on the potential turnaround of Argos, and this statement does not change our views," she said.
Home Retail laid out a plan last year to reinvent the 737-store Argos for the digital age, replacing its laminated catalogues with touch-screens and targeting a 15 percent rise in sales to 4.5 billion pounds by 2018 as well as mid-single-digit operating margins. It is investing 525 million pounds over three years.
The group will focus its stores increasingly on product pick-up and customer service for transactions managed online or through mobile devices, aiming to attract more shoppers and reverse five years of falling profits.
Online sales made up 42 percent of Argos's total sales, helped by a doubling of sales on mobile devices, which accounted for 14 percent of the total, Finance Director Richard Ashton said.
At Homebase, Britain's second largest home improvement firm after Kingfisher's B&Q, like-for-like sales grew 1.4 percent, slightly less than the company had expected.
Seasonal products performed poorly, which was blamed on the weather, although big-ticket items like kitchens were stronger, helped by higher demand for the store's own installation service, it said.
Analysts had expected a 1.4 percent fall in like-for-like sales at Homebase, following four quarters of decline in 2012-13.
But more promotional activity than a year ago squeezed the gross margin at the chain by 200 basis points.
"We would expect the gross margin (at Homebase) to be slightly weaker for the full year because we have been more promotional in the first quarter. We have done a bit more clearance of stock," Ashton said.
"So our best view of margin for Homebase for the full year would be down 50 basis points, opposed to the flat guidance we gave with year-end results."
(Editing by Kate Holton; editing by Tom Pfeiffer)