Home Retail Group has recorded flat first-quarter like-for-like sales at its Argos chain ahead of expectations, but has warned that the outlook remains challenging.

Like-for-likes at the group’s Homebase chain slumped 12 per cent in the 13 weeks to May 31, partly because of poor weather in the first two months of the quarter, it said.

Home Retail finance director Richard Ashton said that Argos had performed ahead of the market. Analysts forecasted a fall of between 2 and 3 per cent at the chain.

Sales at Argos were helped by lower-margin consumer electronics categories, including a “quite exceptional” demand for video games, consoles and related software and accessories, including Wii Fit, Nintendo DS and Grand Theft Auto IV.

However, Ashton said that, unless the demand for these categories continued, he expected a rebalancing in expectations and would be surprised if the sales momentum remained.

Gross margins fell 125 basis points at Argos and total sales were up 4 per cent to£929 million.

Seasonal items at Homebase fell 20 per cent on a 5 per cent decline in sales to£440 million. Ashton said it is too early to know whether this will lead to stock surplus. Last year, the retailer carried over£30 million of stock into the winter following the summer floods. Margins at Homebase rose 125 basis points.

Ashton said pre-tax profit forecasts for the full year remained in line with expectations of£379 million.

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