Investment Column: Argos catalogues reasons why the boom will not last

As soothsayers go, Argos chief executive Mike Smith is well known for erring on the side of caution. But yesterday, the downbeat retailer surpassed himself. Never mind all the hype about a consumer boom - it won't last, was his message. The windfall factor is a one-off he says, interest rates rises will start to have an effect and by the end of the year, consumers will not be feeling half as chipper.

Given recent analysis of the economic effects of the windfall payments he is probably right. Sadly, it is not what Argos investors really want to hear.

After two years during which Argos appeared to walk on water, the catalogue retailer has lost its glitter this year after two profits warnings. The shares, which were riding high at almost 800p last October, have dribbled down to 621.5p, after a 1.5p drop yesterday.

So what the market was looking for were signs that the company might be set to re-capture the premium rating of yesteryear. Sadly that appears some way off. What Argos now appears to be is a good, solid operator, in a competitive, mature market.

Yesterday's half-year figures were in line with the reduced expectations, with pre-tax profits of pounds 28m against pounds 32m the previous year, hit by some one-off costs.

The company is trying to go for growth but the market is concerned it will not come soon enough. At home, it printed more catalogues with wider ranges and cut the margin by 0.5 per cent to grow sales. More is being spent on advertising and promotion and a store opening programme to take the number of outlets from the current 433 to around 700 is still in place.

Home delivery is now offered in all stores but the pounds 5 charge will only cover the costs of the service. The First Stop trial of low-priced electrical good shops is being kept at just three stores for the time being with no new openings planned for the rest of the year.

The worry is that at a boom time for consumer electronics and furniture, group like-for-like sales grew by a modest 5.3 per cent in the half year and 8 per cent since then.

Abroad, Argos will start trading in Holland next year but expects the venture to lose pounds 4m-pounds 5m in 1997 and up to pounds 8m next year. Break-even is not anticipated until 2001.

Argos is still growing share in key sectors and is still the price leader in many of them. But on forecasts of pounds 150m for the full year, Argos shares trade on a forward rating of 17. A solid hold, but not one to overexcite.