Argos-owner Home Retail Group sees profits fall sharply
Home Retail Group (HRG), which owns Argos and Homebase has reported a 71% fall in half-year profits to £29.4m.
Homebase's performance had been "robust", it said, but customers at Argos were coming under more pressure and its sales there were harder hit.
Like-for-like sales at Argos, which strip out the impact of new stores, fell 9.1% in the 26 weeks to 27 August.
HRG said sales of consumer electronics had been particularly hard hit, falling 20% over the period.
The shares closed down 16.9% in London.
The company said that Argos customers had been struggling in the current economic climate, as they benefited less from low interest rates than others and also spent a higher proportion of their take-home pay on essentials like food and energy, which have been seeing big price rises.
However, HRG said Homebase was doing well in a challenging environment, and that although sales of big-ticket items "remained challenging" there had been good growth in bedroom furniture sales.
HRG bought the rights to the Habitat brand in the period, along with three of its London stores.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "For now, investor concern continues to be fully vindicated. Profits have missed already lowered forecasts, with Argos suffering the full force of the consumer retrenchment."
He added that the company "remains in a very difficult place, with downbeat management outlook comments likely to foster further profit downgrades".
HRG also announced it is forming a joint venture with Haier Electronics, the Chinese home appliance manufacturer.
The new business will open its first Argos store in Shanghai in 2012 and says its long-term aim is to open other outlets across China.
HRG will invest £22m in the firm over a two-year period and own a 49% stake. Haier will hold the remaining 51%.
"With the retail market in China growing strongly over the last few years, we believe that this new business will be well placed to benefit from its continued growth," said Yunjie Zhou, chief executive of Haier.
The move follows HRG's unsuccessful foray into India. Its five Argos stores there closed in 2009.
However, some experts are optimistic about this latest move.
"In the UK they are not performing particularly well, and there is a good opportunity for the company in China," said Louise Howarth, an analyst at Planet Retail.
"It offers great growth potential and is the one market to watch for the whole retail industry."