Home Retail Group (HRG) has lowered its profit expectations for the year to February 26, 2011, after sales at Argos dropped 3.1% during the final eight weeks of the company's financial year.
This equated to a 4.6% decline on a like-for-like basis, with gross margin also declining by 150 basis points due to an increased level of clearance activity.

Meanwhile, total sales at Homebase increased by 1.8% to £208m (up 3.8% like-for-like). The retailer saw further growth in 'big ticket' sales, driven by bathrooms and bedroom furniture, while sales for the remaining categories were broadly flat.

Gross margin at Homebase jumped 300 basis points, thanks to improved stock management and a reduction in promotional activity.

HRG chief executive Terry Duddy said: "There are clear signs of further pressures on consumer spending, with recent trading conditions, particularly at Argos, proving to be more difficult and volatile than we anticipated.

"As a result, group benchmark PBT for the year just ended is now expected to be between £250m and £255m. Against the backdrop of the challenging economic environment, and taking in to account our most recent trading, we are now planning with increased caution for the year ahead."

HRG had previously forecast profits of between £250m and £275m for the full year.

A statement from market analysts Credit Suisse said the decline in like-for-like sales at Argos is "surprising" given the weak comparatives in Q4 last year (when sales declined 9% like-for-like) and given that this performance covers the launch of the new catalogue.

The report said: "We expect 2011/12 to be a challenging year for Argos. The weakness of its catalogue launch may well suggest its pricing remains out of kilter with the rest of the market. We continue to believe that as supermarkets continue to develop their non-food offer that this is likely to restrict Argos's ability to expand EBIT margins over the longer term."