Home Retail Group issues profits warning as Argos sales fall

Argos store in London: John Stillwell/PA Wire

Argos store in London: John Stillwell/PA Wire - Credit: PA

Argos owner Home Retail Group has warned over profits after it said the chain suffered falling sales amid 'mixed' trading over Christmas.

Home Retail - which on Wednesday night revealed talks to sell its DIY arm Homebase and rejected a takeover approach for the wider business from Sainsbury's in November - posted a 2.2% fall in sales at established Argos stores for the 18 weeks to January 2.

Despite a better performance from the Homebase chain, where like-for-like sales rose 5%, Home Retail said group underlying profits were expected to be at the bottom end of City expectations for the full-year.

John Walden, chief executive of Home Retail, said it had been a 'very eventful' time for the group after it rebuffed the bid approach from Sainsbury's before Christmas and revealed advanced discussions over a £340 million sale of Homebase.

It said on Wednesday it was finalising sale documents for Homebase with Australian retail giant Wesfarmers after the pair opened negotiations in September.

Homebase has more than 270 stores, employs around 18,000 staff and turned over around £1.5 billion last year.

But the Christmas trading woes at Argos come at a bad time for Home Retail as Sainsbury's considers its next move in the takeover saga.

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Home Retail said it expects group underlying profits to be at the bottom end of expectations for between £92 million and £118 million for the year to the end of February.

Mr Walden said trading at Argos was 'mixed' as it was hit by uneven trading over the run-up to Christmas caused by the Black Friday promotional day in late November, as well as a slump in the number of shoppers on high streets and falling prices.

Sales on Black Friday leapt 41% higher in its busiest ever sales day.

But Mr Walden added: 'Consumer enthusiasm for Black Friday resulted in sales shifts from both the weeks before and after the event.

'Furthermore, during December, Argos experienced a 13% reduction in traditional store walk-in sales, exacerbated in high-street and shopping centre stores.'

Argos continued to see a fall in sales of electrical products, with tablets, video gaming and white goods the worst affected.

Toys and furniture sales rose, while sales in homewares and jewellery also fell.

Sainsbury's said on Wednesday that it believed the tie-up with Home Retail and Argos was 'strategically compelling', but it would not overpay for the group, saying it was not a deal 'at any price'.

It also confirmed that if a deal went ahead, it plans to shut a raft of Argos outlets and relocate them in Sainsbury's stores, with experts estimating up to 200 high street shops could be impacted.

Mr Walden said the Home Retail board considered the Sainsbury's swoop 'seriously' but decided it 'wasn't an appropriate approach'.

'We don't have an offer from Sainsbury's at the moment, so we don't have anything to react to or comment on,' he added.

He insisted the group was 'optimistic about Argos's future', despite its Christmas performance.

The alert over full-year profits comes after it warned in October that annual profits would fall 'slightly' short of City expectations and would see forecasts trimmed once again.

As well as the volatility caused by Black Friday, costs of the new Argos Fast Track same-day delivery service will also take their toll on annual profits after contributing to a near halving in interim earnings at the high street chain.

The launch of its Fast Track service comes as it steps up its advance against the likes of Amazon, with the group in the middle of a major revamp to turn itself into a cutting-edge digital retailer.

Shares in Home Retail rose 3%, with attention firmly remaining on the next move by Sainsbury's.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: 'The trading update and news regarding a potential sale of Homebase puts the ball firmly back with Sainsbury's.

'The question of price remains at the top of the agenda for investors, with the potential sale of Homebase making a takeover of Argos by Sainsbury's that much easier.'

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